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MMG - Micromega - Abridged audited group results for the year ended 31 December

Release Date: 25/03/2008 17:30
Code(s): MMG
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MMG - Micromega - Abridged audited group results for the year ended 31 December 2007 MICROmega Holdings Limited (Incorporated in the Republic of South Africa) (Registration number 1998/003821/06 Share code MMG ISIN ZAE000034435 ("Micromega" or "the Company") ABRIDGED AUDITED GROUP RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007 Increase In Revenue 53% Increase In Headline Earnings Per Share 34% Increase In Attributable Profits Per Share 33% Increase In Net Asset Value Per Share 31% ABRIDGED GROUP INCOME STATEMENTS Audited Audited year year ended ended
31 December 31 December 2007 2006 Restated R(`000) R(`000)
Revenue 483 174 315 062 Cost of sales (312 073) (165 237) Gross profit 171 101 149 825 Other income 5 784 1 688 Other expenses 2 (122 531) (111 275) Operating profit 54 354 40 238 Net finance income 1 798 4 611 Share of (losses) / profits of associates (162) 140 Profit before taxation 55 990 44 989 Taxation expense (14 400) (14 205) Profit for the year 41 590 30 784 Attributable to: Ordinary Shareholders 40 401 29 703 Minority Shareholders 1 189 1 081 Reconciliation of headline earnings Net profit attributable to ordinary shareholders 40 401 29 703 (Profit)/loss on disposal of property, plant and equipment (114) 65 Profit on disposal of listed investments (464) - Income from write off of loan accounts (77) - Profit on sale of subsidiary 3 (2 559) - Impairment of intangible assets 4 122 - Impairment of investments 5 32 500 - Impairment of loan 6 (28 959) - Headline earnings 40 850 29 768 Headline earnings per share (cents) 41.91 31.35 Attributable earnings per share (cents) 41.45 31.28 Fully diluted earnings per share (cents) 40.96 30.69 Weighted average number of shares (000`s) 97 464 94 971 Fully diluted weighted average number of 98 644 96 786 shares (000`s) Total number of shares in issue (000`s) 98 145 96 326 ABRIDGED GROUP BALANCE SHEETS Audited Audited year year ended ended
31 December 31 December 2007 2006 Restated R(`000) R(`000)
ASSETS Non-current assets Property, plant and equipment 25 197 20 252 Intangible assets 59 762 50 306 Deferred tax 7 907 8 528 Investments 8 099 6 642 Loans receivable 3 720 3 698 Total non-current assets 104 685 89 426 Current assets Inventories 39 278 18 298 Trade and other receivables 81 668 48 412 FEC asset 186 - Current portion of loans receivable 168 - Cash and cash equivalents 52 640 57 255 Total current assets 173 940 123 965 TOTAL ASSETS 278 625 213 391 EQUITY AND LIABILITIES Equity Share capital 194 120 188 131 Non-distributable reserves 4 945 2 599 Accumulated losses (9 644) (49 045) Total equity attributable to equity holders of the company 189 421 141 685 Minority interests 4 262 3 073 Total equity 193 683 144 758 Non-current liabilities Loans and borrowings 5 812 10 994 Deferred tax 1 324 1 107 Total non-current liabilities 7 136 12 101 Current liabilities Trade and other payables 57 886 35 491 FEC liability - 108 Provisions 450 1 625 Current portion of loans and borrowings 12 257 11 320 Taxation payable 5 868 6 394 Bank overdraft 1 345 1 594 Total current liabilities 77 806 56 532 TOTAL EQUITY AND LIABILITIES 278 625 213 391 Net asset value per share (cents) 197.34 150.28 Net tangible asset value per share (cents) 136.45 98.05 ABRIDGED GROUP CASH FLOW STATEMENTS Audited Audited year year ended ended
31 December 31 December 2007 2006 Restated R(`000) R(`000)
Cash generated by operations 56 696 46 839 Movement in working capital (17 748) (7 169) Net finance income 1 705 4 146 Dividends received 6 11 Taxation paid (13 396) (11 265) Net cash generated from operating activities 27 263 32 562 Net cash utilised in investing activities (33 739) (12 815) Treasury shares sold / (repurchased) 2 550 (5 931) Deferred vendor loans raised / (repaid) 1 825 (4 496) Loans (repaid) / raised (2 265) 87 Net cash generated from / (utilised in) financing activities 2 110 (10 340) Net (decrease) / increase in cash and cash equivalents (4 366) 9 407 Represented as follows: Cash and cash equivalents at beginning of the year 55 661 46 254 Cash and cash equivalents at end of the year 51 295 55 661 Net (decrease) / increase in cash and cash equivalents (4 366) 9 407 ABRIDGED GROUP STATEMENTS OF CHANGES IN EQUITY Share Share Share- Revalu- Foreign Deal Accum- capital premium based ation currency diffe- ulated payment reserve transla- rences loss reserve tion reserve
reserve R(`000) R(`000) R(`000) R(`000) R(`000) R(`000) R(`000) Balance at 1 929 181 723 5 061 1 383 - - (78 472) January 2006 as previously disclosed Correction of 2 - 178 (4 447) - - - (276) errors Restated balance 929 181 901 614 1 383 - - (78 748) at 1 January 2006, net of tax Movement in minor- ity interests on restructuring Revaluation of 452 property, plant and equipment, net of tax Realisation of (42) non-distributable reserve Issue of share 51 11 188 capital Share issue (46) expenses Treasury shares (17) (5 915) repurchased Employee share 40 192 options Recognised direc- 963 187 168 806 1 793 - - (78 748) tly in equity Profit for 29 703 the year Balance at 31 963 187 168 806 1 793 - - (49 045) December 2006 Balance at 1 963 186 950 6 033 1 793 - - (48 570) January 2007 as previously disclosed Correction of 2 - 218 (5 227) - - - (475) errors Restated balance 963 187 168 806 1 793 - - (49 045) at 1 January 2007, net of tax Foreign currency 2 Translation diff- erences Revaluation of 697 property, plant and equipment, net of tax Creation of non- 1 000 (1 000) distributable re- serve for deal differences Issue of share 12 3 391 capital Share issue (9) expenses Treasury shares 7 2 543 sold Employee share 45 647 options Recognised direc- 982 193 138 1 453 2 490 2 1 000 (50 045) tly in equity Profit for 40 401 the year Balance at 31 982 193 138 1 453 2 490 2 1 000 (9 644) December 2007 ABRIDGED GROUP STATEMENTS OF CHANGES IN EQUITY CONTINUED Total Minori- Total Attrib- ty int- Equity
utable erest to ord- nary share-
holders R(`000) R(`000) R(`000) Balance at 1 110 624 - 110 624 January 2006 as previously disclosed Correction of 2 (4 545) - (4 545) errors Restated balance 106 079 - 106 079 at 1 January 2006, net of tax Movement in minor- - 1 992 1 992 ity interests on restructuring Revaluation of 452 452 property, plant and equipment, net of tax Realisation of (42) (42) non-distributable reserve Issue of share 11 239 11 239 capital Share issue (46) (46) expenses Treasury shares (5 932) (5 932) repurchased Employee share 232 232 options Recognised direc- 111 982 1 992 113 974 tly in equity Profit for 29 703 1 081 30 784 the year Balance at 31 141 685 3 073 144 758 December 2006 Balance at 1 147 169 3 073 150 242 January 2007 as previously disclosed Correction of 2 (5 484) (5 484) errors Restated balance 141 685 3 073 144 758 at 1 January 2007, net of tax Foreign currency 2 2 Translation diff- erences Revaluation of 697 697 property, plant and equipment, net of tax Creation of non- - - distributable re- serve for deal differences Issue of share 3 403 3 403 capital Share issue (9) (9) expenses Treasury shares 2 550 2 550 sold Employee share 692 692 options Recognised direc- 149 020 3 073 152 093 tly in equity Profit for 40 401 1 189 41 590 the year Balance at 31 189 421 4 262 193 683 December 2007 NOTES TO THE ABRIDGED GROUP FINANCIAL INFORMATION 1. Basis of preparation The abridged audited results for the year ended 31 December 2007 have been prepared in accordance with International Financial Reporting Standards (IFRSs)and its interpretations issued by the International Accounting Standards Board (IASB), JSE Limited Listing Requirements and Companies Act of South Africa. 2. Correction of errors 2.1 Business combinations The group re-assessed the values attributed to identifiable assets and liabilities arising from the business combinations which were made in 2005 in terms of a more detailed purchase price allocation valuation model as required by IFRS 3 - Business combinations. This correction has been applied to the acquisition of BTM Manufacturing (Proprietary) Limited and MECS Africa (Proprietary) Limited. The effect of this change in error is as follows: MECS Afri- BTM Manuf- Total ca (Pty) acturing Ltd (Pty) Ltd
R(`000) R(`000) R(`000) Income statement Effect on years before 01 January 2006 Accumulated loss as previously stated - - (78 472) at 31 December 2005 Amortisation of intangible assets (41) (121) (162) Deferred tax effect 12 35 47 Accumulated loss as restated at 31 (78 587) December 2005 Balance sheet effect Property, plant and equipment - (4 000) (4 000) Goodwill 2 860 1 607 4 467 Intellectual property (2 500) (3 750) (6 250) Trademarks - (3 000) (3 000) Brand names 1 170 4 990 6 160 Customer relationships (3 216) 1 337 (1 879) Deferred tax 1 657 2 730 4 387 Accumulated loss 29 86 115 Income statement Effect of year ended 31 December 2006 Profit as previously stated for the 29 902 year ended 31 December 2007 Amortisation of intangible assets (162) (729) (891) Deferred tax effect 47 210 257 Restated profit for the year ended 31 29 268 December 2006 2.2 Share-based payments The group historically used the intrinsic method to value share-based expenditure. The method used to value share-based expenditure has been changed to the fair value model as required by IFRS 2 - Share-based payments. The effect of this change in error is as follows: Group R(`000) Income statement Effect on years before 01 January 2006 Accumulated loss as previously stated (78 587) at 31 December 2005 after IFRS 3 correction Reduction in share-based expenditure 4 269 Accumulated loss as restated at 31 (74 318) December 2005 Effect of year ended 31 December 2006 Profit as previously stated for the 29 268 year ended 31 December 2007 after IFRS 3 correction Reduction in share-based expenditure 740 Restated profit for the year ended 31 30 008 December 2006 Balance sheet effect Share premium (178) Share-based payment reserve 4 447 Accumulated loss (4 269) 2.3 Deferred taxation The company had previously treated the impairment of loans receivable as a temporary difference and had raised a deferred tax asset at the capital gains tax rate. This has now been corrected to a permanent difference as no disposal took place until such time as the loan accounts are written off permanently. The effect of this change in error is as follows: Group R(`000) Income statement Effect on years before 01 January 2006 Accumulated loss as previously stated (74 318) at 31 December 2005 after IFRS 3 and IFRS 2 corrections Reduction in deferred tax asset (4 430) Accumulated loss as restated at 31 (78 748) December 2005 Effect of year ended 31 December 2006 Profit as previously stated for the 30 008 year ended 31 December 2007 after IFRS 3 and IFRS 2 corrections Reduction in deferred tax asset (305) Restated profit for the year ended 31 29 703 December 2006 Balance sheet effect Deferred tax asset (4 735) Accumulated loss 4 735 2007 2006 Restated R(`000) R(`000) 3. Profit on sale of subsidiary On 1 January 2007, the group acquired all the 2 559 - Shares in Lwanelerato (Proprietary) Limited and disposed of the company immediately. The group realised a profit of R2 558 588, net of tax from this disposal. 4. Impairment of intangible assets The group impaired the intangible asset value that 122 - arose on the acquisition of Channer Batteries (Proprietary) Limited down to the recoverable amount of the cash generating unit. 5. Impairment of investment During the year the company acquired 100% of 32 500 - Mzimkhulu Financial Investments (Proprietary) Limited in terms of a deed of pledge on the transaction entered into with them in 2005. The assets held by Mzimkhulu were impaired to the recoverable amount of expected future economic benefits. 6. Impairment of loan The Mzimkhulu loan was secured by a deed of pledge (28 959) - of 50% of the issued share capital of MICROmega Revenue Management Solutions (Proprietary) Limited. Due to the acquisition made during the year all amounts raised in prior years as provisions on the loan accounts was reversed. Commentary on results We are pleased to report a 34% increase in headline earnings per share to 42 cents, a 53% increase in revenue and a 33% growth in attributable profit per share. The group`s balance sheet continues to strengthen with an increase of 31% in net asset value to 197 cents per share and an increase of 39% in net tangible asset value to 136 cents per share. Of the 34% increase in headline earnings per share 14% is attributed to acquisitions and 20% to organic growth. The organic growth was negatively impacted by costs associated with the establishment of new business opportunities during the last quarter of 2007. Our philosophy of affording our shareholders an opportunity to participate across a broad base of economic sectors remains at the forefront of our growth strategy. We remain convinced that our focus on diversification in the domestic economy will deliver the sustainability in earnings growth that we seek to achieve. We are undergoing a "change in shape" within the sectors that we are invested as well as greater uncertainty in the broader economic factors that impact on those sectors. In both instances we have been able to adapt to changing circumstances in a manner that both grows and protects our earnings without compromising future earnings growth. Our acquisitions and organic growth have to date been funded out of operating cash flows. Consequently the group`s earnings have not been affected by rising interest rates. Current cash reserves and strong cash based earnings will continue to shield the balance sheet against any further adverse interest rate movements and we anticipate that we will continue to have the capacity to grow earnings without undue exposure to debt funding. Whilst we do import certain products within our automotive sector we are price makers on these specific items which shields us against Rand volatility. We have consequently managed to maintain our gross margins on those products. Cash generated from operating activities has not improved year on year. This is specifically attributed to our decision to increase our investment in steel based inventory as well as the cyclical increase in trade receivables. The decision to increase steel based stock holdings was motivated primarily by the anticipated escalation in the cost of steel, whilst the movement in trade receivables year on year is a result of the increased uptake of products and services from our support services sector in November and December. Sector Analysis Our philosophy of diversifying our activities to manage sustainable earnings growth without dependency on a specific sector of the economy has proved successful. Automotive The businesses within this sector are: Deltec Power Distributors; Lubrication Equipment; BTM Manufacturing; and Automobile Radio Dealers Association This sector contributed 30% to total headline earnings. The growth in performance and contribution is largely attributed to the diverse nature of the businesses within it. We provide products and services to both the parts and accessories and the aftermarket markets: consequently we have not been impacted by the slow down in the growth in new car sales that was experienced in the domestic market during the period under review. The need to continue to enhance our distribution capabilities remains important to the success of this sector and we anticipate having further investments in this capability. Information Technology The businesses within this sector are: MICROmega Revenue Management Solutions; Intermap; and Sebata Municipal Solutions This sector contributed 23% to total headline earnings. We anticipated a far higher growth in earnings from this sector which specializes in the provision of services to public sector South Africa. Unfortunately the client procurement cycle during 2007 was the slowest we have experienced since the introduction of this sector to the group. We are committed to this sector and have positive views on growth opportunities within it. Recognition of the need for further diversification has resulted in the establishment of two new businesses that focus primarily at providing services to the large network users in the public and private sector. These businesses are Stable-Net and MICROmega Technologies; a brief summary of both is given below. Support Services The businesses within this sector are: NOSA; and Mecs Africa This sector contributed 27% to total headline earnings and continues to present a high growth opportunity for the group. The current market demand for occupational health, safety and environmental services provided by NOSA bodes well. The demand for skills in the engineering and construction sector, and the fluidity with which these skills transfer themselves within the domestic market continues to present opportunities to Mecs Africa, our human resource outsourcing business. Financial Services The only company remaining within this sector is MICROmega Securities which contributed 20% to total headline earnings. This sector continues to leverage it`s earnings off the volatility in the foreign exchange, bond and derivative markets. The business has renewed its ten year trade and co-operation agreement with London based Tullett Prebon for a further five years commencing 1 January 2008 and this will ensure sustainable access to both domestic and international markets. The sector has recently established brokerage services into the rest of Africa which will ensure an earnings diversification in future periods. Acquisitive growth During the period under review we made two acquisitions, namely Lubrication Equipment ("Lubrequip") and Automobile Radio Dealers Association ("ARDA"). Lubrequip is an industry leader in workshop lubrication installations, special lubrication projects and lubrication product supplies. Since its inception in 1962, Lubrequip has built up an enviable reputation for being a quality supplier of equipment to mines, the automotive industry, the agricultural sector and general industry. Its vast and expansive product range covers the full spectrum from grease nipples to sophisticated centralised lubrication systems for workshops. ARDA is a distributor of air conditioning, car audio as well as automotive security to fitment centres throughout Southern Africa. The business started in 1966 as a platform of information shared amongst ten automotive fitment centres. In 1973 these fitment centres formed the Automobile Radio Dealers Association. The modus operandi of the association was to collate bulk orders from the members and distribute the goods at advantageous prices to them. Due to the success and size of the operations by 1989 it had evolved into a broad based automotive distributorship based in all major centres in South Africa. New business opportunities During the period under review we established three new businesses. Stable-Net has been appointed as a Centre of Excellence for Cisco in emerging markets. Stable-Net provides business network optimisation services which ensure that the investment in information and communications technology by an organization meets its specific business needs. MICROmega Technologies ("MMT") is a specialist distributor of business network performance solutions. The products and services distributed by MMT range from hardware devices, software-based analytical and management systems and associated services. These tools are used to optimise technology resources within an organisation, including data centres, communications networks and business applications. MICROmega African Money Brokers was established to provide market participants on the African continent with access to transparent spot and forward foreign exchange prices. The business will initially provide a platform to match the buyers and sellers in specific currencies at the best available price on a name give up basis. The aforementioned businesses were all established in the last quarter of 2007 and made no contribution to headline earnings for the period under review. The full economic impact of commissioning these businesses has been taken against earnings in 2007. Post year end activities As reported to shareholders in a previous announcement, we are continuing with our strategy to strengthen our strategic position in the automotive sector. Subject to Competition Commission approval we have acquired a tier one original equipment market manufacturer, namely Kolbenco (Pty) Ltd. This business in the sole manufacturer of automotive pistons in South Africa, manufacturing and exporting approximately one million units per annum. Our confidence in Government`s continued commitment to the motor industry development program ("MIDP") and prospects of significant domestic investment in the industry will undoubtedly ensure sustainable growth not only in this business but in the sector as a whole. We would like to take this opportunity to thank our sponsoring brokers Investec, our attorneys Routledge Modise and our newly appointed auditors KPMG for their contribution and commitment to the group during the reporting period. To our customers we remain focused on ensuring you receive a professional service and quality products and we thank you for your ongoing loyalty. To our shareholders we remain committed to our growth strategy whilst preserving the integrity of our balance sheet. Report of the auditors KPMG Inc has issued an unmodified auditor`s report on the group annual financial statements for the year ended 31 December 2007 from which the abridged group annual financial statements are derived. For a better understanding of the Group`s financial position at 31 December 2007 and its financial performance and cash flows for the year then ended, the abridged group annual financial statements should be read in conjunction with the group annual financial statements from which the abridged financial statements are derived. By order of the Board Directors: IG Morris (Chairman), RC Lewin (Non-Executive), ES Mpanza (Non- Executive), DM Carson (Non-Executive) Company Secretary: DJ Case Auditors: KPMG Inc. Transfer Secretaries: Computershare Investor Services (Pty) Ltd Sponsor Broker: Investec Bank Limited Attorneys: Routledge Modise 25 March 2008 Date: 25/03/2008 17:30:27 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.

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