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Mvelaphanda Group Limited - Reviewed results for the year ended 30 June 2005
Mvelaphanda Group Limited
(Formerly Rebserve Holdings Limited ("Rebserve"))
(Incorporated in the Republic of South Africa)
Registration number 1995/004153/06
("Mvela" or "the company")
ISIN: ZAE000060737 Share code: MVG
Reviewed results for the year ended 30 June 2005
The following are the reviewed results of Mvela and its subsidiaries ("the
group") for the year ended 30 June 2005 with comparative figures.
HIGHLIGHTS
* Intrinsic net asset value per share (at directors" valuation) at 30 June 2005
up 19% to R8.35
* Headline earnings per share up 21% to 135.5 cents
* Cash generated from operations up 22% to R436 million
* Headline net profit attributable to ordinary shareholders up 109% to R415
million
* Excellent performance by investments, complemented by steady operating
performances by MvelaServe businesses
* Further consolidation of the merger which created South Africa"s pre-eminent
broad-based, black-controlled, owned and managed diversified group
Summarised Group Balance Sheet
Reviewed Audited
30 June 2005 30 June 2004
R"000 R"000
Assets
Non-current assets 2 886 010 701 102
Property, plant and equipment 334 067 352 350
Goodwill 616 983 275 065
Investments and loans 1 897 855 29 510
Deferred taxation 37 105 44 177
Current assets 668 582 1 100 957
Liquid funds 177 376 440 789
Other current assets 491 206 660 168
TOTAL ASSETS 3 554 592 1 802 059
EQUITY AND LIABILITIES
Capital and reserves 2 609 110 1 003 458
Share capital and reserves 2 609 110 971 553
Amounts due to vendors - 31 905
Outside shareholders" interest 1 075 614
Non-current liabilities 228 130 85 297
Interest bearing liabilities 148 386 69 332
Non-interest bearing liabilities 10 336 3 395
Deferred taxation 69 408 12 570
Current liabilities 716 277 712 690
Interest bearing liabilities 83 898 73 490
Non-interest bearing liabilities 632 379 639 200
TOTAL EQUITY AND LIABILITIES 3 554 592 1 802 059
Net asset value per share (cents) 647.2 565.0
Net tangible asset value per share 493.9 388.6
(cents)
Intrinsic net asset value per share 835.0 700.0
(cents) (Note 1)
Note 1: Intrinsic net asset value per share (which is not audited) is calculated
with reference to the market value and/or directors" valuation (including for
listed companies) of the group"s investments and operating companies.
Summarised Group Income Statement
Reviewed Audited
Year Year
ended ended
30 June 2005 % 30 June 2004
R"000 increase R"000
Revenue 3 221 310 3 487 126
Profit from continuing 244 970 259 266
services businesses
(Loss)/profit from disposed (38 101) 11 257
mining services operations
Profit from operations 206 869 270 523
Income from associates 121 316 783
Fair value gains on 227 231 -
revaluation of investments
Net interest and other (8 461) 16 982
investment income
Net profit before taxation 546 955 90 288 288
and exceptional items
Exceptional items (Note 2) (36 439) (17 229)
Net profit before taxation 510 516 88 271 059
Taxation (124 533) (67 079)
Normal, deferred and capital (102 024) (60 501)
gains tax
Secondary tax on companies (22 509) (6 578)
Net profit after taxation 385 983 89 203 980
Net profit attributable to (9 197) (23 091)
outside shareholders
Net profit attributable to 376 786 108 180 889
ordinary shareholders
Number of shares in issue 403 163 177 250
(after share buybacks) (000)
Weighted average number of 306 305 177 250
shares in issue (000)
Earnings per share (cents) 123.0 21 102.1
Headline earnings per share 135.5 21 111.8
(cents)
Fully diluted headline 135.5 21 111.5
earnings per share (cents)
Dividend/distribution per 10.0 175.0
share (cents)
Note 2: The exceptional items comprise goodwill impaired and written off on the
disposal of the mining services operations and the impairment of an investment
in an associated company.
Summarised Group Cash Flow Statement
Reviewed Audited
30 June 2005 30 June 2004
R"000 R"000
Profit from operations 206 869 270 523
Non-cash items 104 903 103 422
Working capital changes 123 739 (17 407)
Cash generated from operations 435 511 356 538
Net interest and other investment (7 110) 16 982
income
Taxation paid (75 469) (42 641)
Dividends paid (195 058) (26 668)
Cash available from operating 157 874 304 211
activities
Cash effects of investing activities (393 413) (145 785)
Cash effects of financing activities (27 874) (209 549)
Net movement in liquid funds (263 413) (51 123)
Net liquid funds at the beginning of 440 789 491 912
the year
Net liquid funds at the end of the 177 376 440 789
year
Statement of changes in equity
Reviewed Audited
30 June 2005 30 June 2004
R"000 R"000
Balance at the beginning of the year 1 003 458 938 236
Acquisition of investments, 1 437 744 (26 944)
subsidiaries and businesses
Share buybacks (13 820) -
Net profit attributable to ordinary 376 786 180 889
shareholders
Distrubution/dividends paid (195 058) (88 723)
Balance at the end of the year 2 609 110 1 003 458
reconciliation between net profit attributable to ordinary shareholders and
headline net profit attributable to ordinary shareholders
Reviewed Audited
30 June 2005 % 30 June 2004
R"000 change R"000
Net profit attributable to 376 786 180 889
ordinary shareholders
Goodwill impaired/written 34 809 16 991
off
Impairment of investment in 1 630 238
an associate
Loss on sale of fixed assets 1 826 -
Headline net profit 415 051 109 198 118
attributable to ordinary
shareholders
segmental information
Reviewed Audited
30 June 2005 % 30 June 2004
R"000 change R"000
REVENUE
Facilities management and 1 094 068 1 269 351
professional services
Mining and technical 582 174 658 509
services
Food services 614 230 788 502
Support services 930 838 770 764
3 221 310 (8) 3 487 126
PROFIT FROM OPERATIONS
Facilities management and 110 033 139 610
professional services
Mining and technical (4 447) 36 336
services
Food services 28 287 36 206
Support services 72 996 58 371
206 869 (24) 270 523
commentary
The merger was implemented on 13 December 2004, on which date the company
changed its name to Mvelaphanda Group Limited to become a broad-based, black-
controlled, owned and managed diversified group. The rationale for the merger
included, inter alia, that Mvela would combine the stature and entrepreneurial
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 early success of the merger is clearly
evident from the results for the year - the excellent performance by the group"s
investments was complemented by steady performances in the main, and strong cash
flows, from the group"s operating businesses.
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 and 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 shareholders. 213 775
000 Mvela shares (equating to 52.8% of the resultant issued share capital) were
issued/transferred to Mvela Holdings, and Mvela Holdings, a black company,
became the controlling shareholder of the company.
The strategy of Mvela is to grow shareholder value (as measured primarily by
intrinsic net asset 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 primarily in
the financial services, mining and resources, property, healthcare, information
technology and general industrial sectors. The largest of these investments
currently comprise -
* a 20% interest in Batho Bonke Capital (Proprietary) Limited ("Batho Bonke"),
which owns preference shares and options equating to an effective 10% stake in
Absa Group Limited ("Absa");
* an 18.1% economic interest in Life Healthcare Group (Proprietary) Limited
("Life Healthcare") (previously Afrox Healthcare Limited);
* a 22.9% interest in Mvelaphanda Resources Limited ("Mvela Resources");
* an effective 30% interest in Abvest Associates (Proprietary) Limited; and
* a 55% interest in Umholi Investments (Proprietary) Limited ("Umholi
Investments"), which owns preference shares and options equating to an effective
10% stake in African Life Limited ("African Life").
The value of the group"s investment in Batho Bonke has increased substantially
as a result of the increase in the Absa share price from R50 in July 2004 to R82
on 30 June 2005, and to R95 at the date of finalisation of the group"s results.
This growth has occurred against the background of a re-rating of shares in the
banking sector, and following the successful acquisition by Barclays Bank PLC
("Barclays") of a controlling interest in Absa. The board of Mvela believes that
the prospects of Absa as a long-term investment, especially under the control of
Barclays, are attractive.
Life Healthcare continues to perform well and is expected to be a significant
investment for the group in future. The possibility of acquiring an additional
stake in Life Healthcare in terms of an existing option held by the BEE
consortium which invested in Life Healthcare is currently being explored.
On 10 August 2005 it was announced by African Life that Sanlam Limited
("Sanlam") had submitted an offer ("the Sanlam offer") to the African Life board
of directors to acquire the entire issued share capital of African Life,
including the preference shares held by Umholi Investments. Subject to the
acceptance of the Sanlam offer by African Life shareholders, the group"s
effective interest in African Life will be sold for cash.
The audited results of Mvela Resources for the year ended 30 June 2005 were
published on SENS on 2 September 2005. The net attributable income of Mvela
Resources for the six months ended 30 June 2005 was R522 million. The group
accounts for the interest in Mvela Resources on the equity method, resulting in
an equity accounted profit from associated companies for the period since
implementation of the merger of R121 million.
All investments are carried at directors" valuation. Changes in the fair values
of investments are accounted for in the income statement as fair value gains
arising on the revaluation of investments.
Net investment income (which comprises mainly interest and dividends received
and interest paid) decreased in line with the decreased cash balances following
implementation of the merger and the investment of, inter alia, R100 million of
proprietary capital in Life Healthcare. In order to achieve the merger, the
company paid out approximately R240 million in cash by way of the special
dividend to shareholders, secondary tax on companies, 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.
Mvela is continually seeking ways to realise the inherent value of certain of
its investments and operations, which might include disposing of certain of its
operating businesses and/or investments, where appropriate, over time. In line
with this strategy, Mvela disposed of its effective interests in Apex Hi Manco
Trust and Storage Technology Services (Proprietary) Limited during the 2005
financial year and has disposed of its interests in Rewards Company
(Proprietary) Limited and Arcus Gibb Holdings (Proprietary) Limited subsequent
to 30 June 2005.
Operations
Rebserve Limited, which has been renamed MvelaServe Limited, 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 currently comprises the major portion of the group"s operating businesses.
The facilities management businesses, which are centred on TFMC, performed in
line with expectations and above the performance of the previous year. The
anticipated steady performance of TFMC (after adjusting for the once-off gain
share payment received from Telkom Limited in the 2004 financial year) was
supplemented by increased contributions to profits from certain of the group"s
other facilities management contracts and joint ventures. Mvela continues to
pursue new facilities management contracts and opportunities, and remains
optimistic about the prospects for concluding a major new facilities management
contract.
Trading conditions in the mining services sector remained very difficult,
especially for businesses in the outsourced mining services sector. In an
environment of a strong Rand versus US Dollar exchange rate, prospects for a
recovery in this sector in the foreseeable future are remote. The performance of
JIC Mining Services (2000) (Proprietary) Limited ("JIC") had deteriorated
materially, and the board of Mvela determined that in the interests of
preserving shareholder value, Mvela should reduce its exposure to the outsourced
mining services sector. On 24 June 2005 the company announced on SENS that it
had concluded an agreement to dispose of the business of JIC ("the JIC
disposal"). All conditions precedent to the JIC disposal have now been fulfilled
and the JIC disposal has been implemented.
The group"s security and contract catering businesses performed well and
achieved strong organic growth. Stamford Sales performed below expectations as a
result of delays in the realisation of the benefits of certain restructuring
initiatives, and the increased costs associated with the implementation of these
restructuring initiatives. The performance of the cleaning and freight
forwarding businesses were in line with expectations.
Revenue for the period under review was 8% below the comparable period.
Increases in revenue in the support services division were offset by decreases
in revenue in the mining services businesses (including as a result of the sale
of JIC) and the loss by Stamford Sales of the KFC contract in the second half of
the 2004 financial year.
Profit from operations of the continuing services businesses for the year was
R245 million, an increase of 12% on the pro forma comparable profit from
operations for the previous year, which pro forma amount is calculated after
excluding the once-off gain share payment received by TFMC from Telkom in the
prior year and the loss/profit from the disposed mining services operations.
The group"s operations continue to generate substantial cash. Cash generated
from operations increased by 22% to R436 million. This amount includes
approximately R100 million of cash collected from the JIC debtors, the majority
of which amount has been advanced, on a secured basis, to the purchasers of the
JIC business as working capital funding, and which advance is included in the
cash effects of investing activities. The cash generated from the group"s
operations will be an important source of funding for the company"s anticipated
future deal flow.
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.
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
Mvela Resources. Results for Mvela Resources have been accounted for from 31
December 2004, being the closest date to the date of the merger for which Mvela
Resources has published its results, and the most practicable date from which to
account for the results of Mvela Resources relative to the implementation date
of the merger.
The group"s intrinsic net asset value at 30 June 2005, calculated with reference
to the market value and/or directors" valuation (including for listed companies)
of the group"s investments and operating companies, was R8.35 per Mvela share.
This value was calculated using appropriate PE multiple, net asset value and
discounted cash flow valuation methodologies as is appropriate for each of the
group"s investments and operations. This represents an increase of 19% over the
valuation of R7.00 utilised by the contracting parties for the purposes of the
merger. No adjustment has been made for any BEE premium which should be applied
when calculating the intrinsic net asset value of R8.35 per share.
The group"s intrinsic net asset value at 6 September 2005, being the last
practicable date prior to the finalisation of these results, and calculated on
the basis set out above, has increased to R8.75 per Mvela share.
As a result of the high level of volatility which may result from marking to
market the valuation of the group"s investments, the group"s future earnings are
also likely to be volatile. In addition, the weighted average number of shares
in issue will increase to approximately 403 million for the 2006 financial year,
and will accordingly have a negative impact on the calculation of earnings per
share and headline earnings per share for the 2006 financial year. In future,
changes in the group"s intrinsic net asset value per share will be considered to
be a primary indicator of the group"s overall performance.
Headline net profit attributable to ordinary shareholders increased by 109% to
R415 million for the year. Headline earnings per share of 135.5 cents increased
by 21% above the headline earnings per share for the comparable period and
compares favourably with the pro forma headline earnings per share figure of 39
cents calculated in the merger circular. This has been achieved notwithstanding
the dilutive effect of the merger on the group"s headline earnings per share as
a result of, inter alia, the STC charge of R22 million on the effective return
of capital to Rebserve shareholders via the special cash dividend of R1.10 per
share, and the capitalisation share issue of 7.14286 new Mvela shares for every
100 existing shares held, as well as the issue of new Mvela shares to Mvela
Holdings in consideration for the acquisition of assets.
The number of shares in issue (after deducting the shares held by the share
incentive scheme at 30 June 2005), increased from 177 249 768 shares at 30 June
2004 to 403 162 978 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.
Post balance sheet events
Shareholders are referred to the announcement made simultaneously with the
publication of these results relating to -
* the proposed capital raising in terms of which the company proposes to raise
R520 million (before expenses), by issuing cumulative convertible perpetual
preference shares, to fund Mvela"s anticipated BEE deal flow and other
opportunities currently being pursued by Mvela; and
* the cautionary announcement in respect of a proposed transaction in addition
to and apart from the capital raising.
On 10 August 2005 it was announced in the press by Group 5 Limited ("Group 5")
that Mvela will, as part of the IlimaMvela consortium, acquire an effective
interest of 10.8% in Group 5.
Accounting policies
The results for the year ended 30 June 2005 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, goodwill and impairments set
out below.
No adjustment has been made to the group"s results for the current or prior
years as a result of the application of Circular 7/2005 issued by the South
African Institute of Chartered Accountants dealing with the requirements of
AC105 - Leases, in respect of operating leases which include fixed rental
increases, as any such adjustment is not material.
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" or "fair value through the profit and loss" in
accordance with AC125 and AC133, Financial Instruments. Other unlisted
investments are also classified as "available for sale" or "fair value through
the profit and loss" 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"
or "fair value through the profit and loss" are measured at fair value. Fair
value gains and losses are accounted for in the income statement.
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 risks, existing at balance sheet date, including
independent appraisals and discounted cash flow methods.
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 in terms of AC 128. Comparative figures have not
been restated.
Review opinion
The results have been reviewed by Mvela"s auditors, PKF (Jhb) Inc., and their
unqualified review opinion is available for inspection at the company"s
registered office.
Dividend
As recorded in the circular to shareholders dated 30 July 2004, it is the policy
of the company to pay a single annual dividend, subject to cash flow
requirements.
The directors of Mvela have resolved to declare a cash dividend (No. 10) of 10
cents per share to shareholders. The last day to trade "cum" the dividend in
order to participate in the dividend is Friday, 28 October 2005. The shares of
Mvela will commence trading "ex" the dividend from the commencement of business
on Monday, 31 October 2005 and the record date will be Friday, 4 November 2005.
The dividend will be paid to shareholders on Monday, 7 November 2005. Share
certificates may not be dematerialised or rematerialised between Monday, 31
October 2005 and Friday, 4 November 2005, both days inclusive.
Prospects
Mvela has a significant pipeline of BEE-related opportunities and expects to
implement value-enhancing BEE and/or other transactions during the 2006
financial year. Through the capital raising and the continued utilisation of the
cash flow of MvelaServe, Mvela will have the "firepower" to pursue major BEE
transactions on a discerning basis.
MvelaServe"s operations are benefiting from its strong BEE credentials. This is
evidenced by the awarding of new services contracts and a significant increase
in the level of enquiries and negotiations to provide services to new clients.
Mvela remains optimistic about the prospects for concluding a major new
facilities management contract.
Mvela 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
shareholders.
T M G Sexwale S M Levenberg
Chairman Chief Executive Officer
8 September 2005
Sandton
Executive Directors:
TMG Sexwale (Chairman), MSM Xayiya (Deputy Chairman),
SM Levenberg (Chief Executive Officer), YZ Cuba, WV Mavimbela,
PJA Mphafudi, BC Till, MJ Willcox
Non-Executive Directors:
KD Dlamini*, BD Hopkins*, OA Mabandla*, D Moshapalo*, JRT Moxon*,
MZ Nxumalo*, RM Patel*, CD Stein (* Independent)
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 (Proprietary) Limited
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: 08/09/2005 08:58:36 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
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