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MVS - Mvelaserve - Unaudited condensed consolidated financial results for the
six months ended 31 December 2010
MVELASERVE
(Incorporated in the Republic of South Africa)
Registration number 1999/003610/06
JSE Share code: MVS ISIN: ZAE000151353
("Mvelaserve" or "the Group")
(Incorporated in the Republic of South Africa)
Key features
- Revenue up 18% to R2 229 million
- Adjusted operating profit up 1,7%
- After tax profit up 34% to R89 million
- Listing on JSE Main Board
A copy of these results is available on the Mvelaserve website at:
www.mvelaserve.co.za
Unaudited condensed consolidated financial results for the six months ended 31
December 2010
Summarised Group statement of financial position
Unaudited Unaudited Audited
31 December 31 December 30 June
2010 2009 2010
R`000 R`000 R`000
ASSETS
Non-current assets 1 075 706 940 038 975 107
Property, plant and equipment 399 442 329 384 387 619
Intangible assets 622 592 544 561 545 338
Investments in associates 7 899 4 126 8 269
Other investments 20 914 28 367 16 362
Deferred tax asset 24 859 33 600 17 519
Current assets 1 143 351 1 576 847 1 753 497
Other investments 5 895 2 005 6 453
Other current assets 847 972 1 204 829 1 372 235
Cash and cash equivalents 289 484 370 013 374 809
Assets in disposal group held- - - 5 045
for-sale
TOTAL ASSETS 2 219 057 2 516 885 2 733 649
EQUITY AND LIABILITIES
Capital and reserves 874 970 145 043 233 300
Owners of the parent 861 848 142 019 227 817
Non-controlling interest 13 122 30 24 5 483
Non-current liabilities 407 396 1 305 541 1 367 157
Interest-bearing liabilities 363 030 573 997 605 470
Noninterest-bearing liabilities 3 750 697 651 722 117
Financial liability - 33 751 31 527 36 900
derivative financial instrument
Deferred tax liability 6 865 12 366 2 670
Current liabilities 936 691 1 056 301 1 133 192
Interest-bearing liabilities 77 753 162 416 178 500
Non interest-bearing 21 239 22 324 18 136
liabilities
Other current liabilities 837 699 871 561 936 556
TOTAL EQUITY AND LIABILITIES 2 219 057 2 516 885 2 733 649
Net number of ordinary shares 141 562 137 076# -
in issue (000)
Net asset value per ordinary 618.1 105.8 -
share (cents)
Net tangible asset value per 1 075.4 527.6 -
ordinary share (cents)
#In the prior year 100 ordinary shares were in issue. For illustrative purposes
only a pro forma restatement of the net number of
ordinary shares in issue for the comparative period has been assumed at the
current number of shares in issue less the 6 850 937 issued in
the aquisition of Zonke.
Summarised Group statement of cash flows
Unaudited Unaudited Audited
6 months to 6 months to 12 months
to
31 December 31 December 30 June
2010 2009 2010
Note R`000 R`000 R`000
Profit from operations 1 65 365 133 573 292 442
Non-cash items 62 883 49 729 107 466
Working capital 103 572 61 376 (19 679)
Cash generated from 231 820 244 678 380 229
operations
Net interest paid (30 049) ( 29 015) (60 494)
Investment income 3 485 3 656 4 108
Normal taxation paid (37 033) (30 726) (58 659)
Cash available from 168 223 188 593 265 184
operating activities
before the payment of
capital gains tax
Capital gains tax paid (6 562) - -
Cash available from 161 661 188 593 265 184
operating activities
Cash effects of investing (7 439) (62 930) (175
activities 879)
Cash effects of financing (52 060) 34 099 75 253
activities
Dividends paid to holding (187 488) - -
company, pre unbundling
and listing
Net movement in cash and (85 325) 159 762 164 558
cash equivalents
Cash and cash equivalents 374 809 210 251 210 251
at the beginning of the
period
Cash and cash equivalents 289 484 370 013 374 809
at the end of the period
1. Reconciliation of
profit from operations
per statement of
comprehensive income to
statement of cash flows
Profit from operations 105 157 133 573 292 442
per statement of
comprehensive income
Non-cash exceptional item (39 793) -
Profit from operations 65 365 133 573 292 442
after the cash effect
from exceptional items
Summarised Group statement of comprehensive income
Unaudited Unaudited Audited
6 months to 6 months to 12 months to
31 December 31 December 30 June
2010 % 2009 2010
R`000 change R`000 R`000
Continued operations
Revenue 2 229 454 18,2 1 886 242 4 061 998*
Profit from operations 105 157 (21,3) 133 573 291 287
Profit from operations 135 816 1,7 133 573 291 287
before exceptional items
Exceptional items (30 659) - -
Net finance costs (30 049) (33 972) (60 494)
Finance income 8 757 5 367 14 888
Finance costs (38 806) (39 339) (75 382)
Investment income 52 220 4 110 3 350
Share of profit from 3 115 1 481 6 076
associates
Net fair value 49 105 2 629 (2 726)
adjustments and
profit/(loss) from
investments
Profit before taxation 127 328 22,8 103 711 234 143
Taxation expense (37 848) (36 952) (80 282)
Normal, deferred, (33 890) (36 827) (78 046)
capital gains and
foreign taxation
Secondary tax on (3 958) (125) (2 236)
companies
Profit for the period 89 480 34,0 66 759 153 861
from continued
operations
Profit from discontinued - - 1 155
operations
Total comprehensive 89 480 34,0 66 759 155 015
income for the period
Profit and total
comprehensive income
attributable to:
Owners of the parent 87 230 66 000 151 799
Non-controlling interest 2 250 759 3 217
89 480 66 759 155 015
Weighted average net 137 076 134 711 -
number of ordinary shares
in issue (000)#
Earnings per ordinary 63,6 29,9 49,5 -
share (cents)
Headline earnings per 31,9 48,5 -
ordinary share (cents)
*Revenue from discontinued operations amounts to R63 657 000 (2009: Rnil).
#Until 29 October 2010 and in the prior year 100 ordinary shares were in issue.
For illustrative purpose only a pro forma restatement of the
weighted average net number ordinary shares in issue has been assumed at the
current number of shares in issue less the 6 850 937 issued in
the aquisition of Zonke.
Reconciliation between profit attributable to owners of the parent and headline
profit attributable to owners of the parent
Unaudited Unaudited 6 Audited 12
6 months to months to months to
31 December 31 December 30 June
2010 2009 2010
R`000 R`000 R`000
Profit attributable to owners of 87 230 66 000 151 799
the parent
Profit on disposal of (49 367) - -
subsidiaries and investments
Profit on sale of property, (1 451) (938) (662)
plant and equipment
Tax effect 7318 263 145
Headline profit attributable to 43 730 65 325 151 282
owners of the parent
Summarised Group statement of changes in equity
Unaudited Unaudited Audited
31 December 31 December 30 June
2010 2009 2010
R`000 R`000 R`000
Balance at the beginning of 233 300 78 898 78 898
the period
Acquisition of subsidiaries 7 791 - -
and investments
Issue of shares 734 288 - -
Total comprehensive income for 89 480 66 759 155 015
the period
Dividends/distributions (189 889) ( 614) (613)
Balance at the end of the 874 970 145 043 233 300
period
Segmental information
Unaudited 6 Unaudited 6 Audited 12
months to months to months to
31 December 31 December 30 June
2010 2009 2010
R`000 R`000 R`000
NET ASSETS
Facilities management services 809 813 648 879 737 439
Security services 334 762 205 505 249 831
Cleaning and catering services 154 797 181 157 180 233
Diversified services (424 402) (890 498) (934 203)
874 970 145 043 233 300
REVENUE
Facilities management services 550 863 538 373 1 105 578
Security services 959 020 768 933 1 577 567
Cleaning and catering services 536 989 426 847 1 087 882
Diversified services 182 582 152 089 290 971
Revenue from discontinued - - 63 657
operations
2 229 454 1 886 242 4 125 655
REVENUE INCLUDING INTER
SEGMENT TRADING
Facilities management services 553 498 538 373 1 105 578
Security services 961 415 771 283 1 577 567
Cleaning and catering services 577 793 429 959 1 087 882
Diversified services 193 213 152 089 290 971
Revenue from discontinued - - 63 657
operations
2 285 919 1 891 704 4 125 655
PROFIT/(LOSS) FROM OPERATIONS
Facilities management services 71 190 70 051 166 740
Security services 62 467 42 342 109 379
Cleaning and catering services 4 382 4 356 14 896
Diversified services (2 223) 16 824 272
Discontinued operations - - 1 155
135 816 133 573 292 442
EXCEPTIONAL ITEMS
Facilities management services (23 040) - -
Security services - - -
Cleaning and catering services - - -
Diversified services (7 619) - -
(30 659) - -
NET FINANCE INCOME/(COSTS)
Facilities management services 12 651 10 383 23 777
Security services (6 888) (7 465) (16 395)
Cleaning and catering services (4 826) (1 225) (4 176)
Diversified services (30 986) (35 665) (63 700)
(30 049) (33 972) (60 494)
INVESTMENT INCOME/(EXPENSE)
Facilities management services 3 115 1 481 6 076
Security services 49 367 - -
Cleaning and catering services - - (1 812)
Diversified services (262) 2 629 (914)
52 220 4 110 3 350
TAXATION
Facilities management services (16 074) (26 251) (46 758)
Security services (13 295) (6 325) (25 245)
Cleaning and catering services 92 (1 063) (1 784)
Diversified services (8 571) (3 313) (6 495)
(37 848) (36 952) (80 282)
TOTAL COMPREHENSIVE
INCOME/(LOSS)FOR THE PERIOD
Facilities management services 47 842 55 664 149 835
Security services 91 651 28 552 67 739
Cleaning and catering services (352) 2 068 7 124
Diversified services (49 661) (19 525) (70 837)
Revenue from discontinued 1 155
operations
89 480 66 759 155 016
Notes to the financial statements
Accounting policies and International Financial Reporting Standards
The unaudited condensed consolidated interim financial statements for the six
months ended 31 December 2010 ("the period") have been prepared in accordance
with International Financial Reporting Standards (IFRS) including IAS 34, AC500
series of interpretations and the JSE Listings Requirements and in the manner
required by the Companies Act of South Africa. The accounting policies adopted
in these unaudited condensed consolidated interim financial statements are
consistent with the accounting policies applied in the audited annual financial
statements for the previous year ended 30 June 2010.
IAS 1 (Revised) Presentation of Financial Statements
The financial information set out herein incorporates changes introduced as a
result of the publication of a revised version of IAS 1 Presentation of
Financial Statements, effective for accounting periods commencing on or after 1
January 2009. The principal change is that an entity must present all non-owner
changes in equity in a statement of comprehensive income. All owner changes in
equity are recognised in a statement of changes in equity. There was no impact
on the Group`s results or net assets as a result of the introduction of the
revised Standard.
IFRS 8 Operating Segments
The Group has prepared its Segmental Information using IFRS 8 Operating
Segments, which requires the disclosure of information based on the "management
approach" to reporting on the financial performance of operating segments.
Generally, the information to be reported would be what management uses
internally for evaluating segment performance and deciding how to allocate
resources to operating segments. Reclassifications of comparative segment
information have been made to align to the Group management reporting structure
described above. There was no impact on the Group`s net profit or net assets as
a result of the introduction of IFRS 8.
Changes in accounting policy and disclosures
Business combinations involving entities under common control
In accordance with IAS 8 Accounting Policies, Estimates and Errors, management
referred to IFRS 3 Business Combinations and accordingly adopted the acquisition
method as the Group`s accounting policy for the treatment of business
combinations under common control.
The Group has applied the new policy prospectively, with the result that no
adjustments were necessary to any of the amounts previously recognised in the
financial statements.
Exceptional items
Exceptional items are those which have been determined by the directors as being
material by their size, incidence or nature and are therefore required to be
disclosed separately to enable a full understanding of the Group`s financial
performance.
Business combinations
Mvelaserve acquired theindirect 75% interest held by Mvelaphanda`s Group
Limited ("Mvelaphanda") in Zonke Monitoring Systems(Proprietary) Limited
("Zonke") on 29 October 2010, in terms of a corporate restructuring, at a value
of R81 million. Mvelaserve issued 6 850 937 new Mvelaserve Ordinary Shares at
R11,82 per share to Mvelaphanda as consideration for the acquisition.
Property, plant and equipment 842
Intangible asset 4 814
Strategic investments 268
Deferred taxation 363
Inventory 338
Trade and other receivables 29 777
Net cash and cash equivalents 2 090
Total assets 38 492
Trade and other payables 4 058
Taxation 3 270
Total liabilities 7 328
Net assets acquired 31 164
Non-controlling interest (7 791)
Goodwill 57 627
Total purchase price 81 000
Shares issued 81 000
Commentary
Introduction
The directors of Mvelaserve are pleased to present the maiden interim results
since listing for the period. Operations grew organically through substantial
new contracts and Mvelaserve further achieved a number of significant strategic
and operational milestones. On 29 November 2010 Mvelaserve successfully listed
on the JSE Main Board with a strong debut at R14,50 per share.
Group profile
Mvelaserve is a leading provider of outsourced business support services in
South Africa, employing in excess of 30 000 people. The Group has established a
diversified portfolio of defensive and growth businesses, offering a wide range
of integrated services including facilities management, security, catering and
cleaning. It further provides services in the gambling, food manufacture and
franchising as well as freight markets. During the period, Mvelaserve acquired
SA Water and established Circle ICT Solutions.
Mvelaserve`s blue-chip customer base ranges across the public and private
sectors, encompassing top banks, mining houses and retailers as well as
parastatals and provincial and local government.
Financial review
Revenue increased by 18% to R2 229 million from R1 886 million in the
comparative period, largely attributable to significant turnover growth in the
security, catering and cleaning operations.
EBITDA increased by 8.7% to R200 million from R184 million, while Group
operating profit excluding exceptional items, increased by 1.7% to R136 million
from R134 million in the comparative period. The marginal increase in Group
operating profit was mainly due to a R15 million increase in operating profit in
the Security Division. This increase was partially offset by a R9 million
reduction in operating profit in the Facilities Management Services Division,
together with a R6 million increase in operating expenses incurred at Head
Office. The decrease in the operating margin before exceptional items to 6,1%
from 7,1% in the comparative period, was largely attributable to a reduced
operating margin in the Facilities Management Services Division as a result of
the contract renewal with Telkom, and low operating margins in the Catering and
Cleaning Services Division following a restructuring exercise.
Net interest paid reduced marginally to R30 million from R34 million. Preference
dividends paid in respect of debt structures increased by R5 million due to an
early settlement penalty resulting from debt restructuring, while asset finance
costs increased by R2 million.
The Group realised a net profit of R49 million for the period from the disposal
of non-strategic assets.
Net exceptional items of R31 million expensed in the Summarised Group statement
of comprehensive income, consisted of a net unbundling expense of R8 million and
once-off retrenchment costs of R23 million consequent to the renewal of the
Telkom contract in the Facilities Management Services Division.
Total comprehensive income increased 34% to R89 million from R67 million in the
comparative period.
Financial position
Non-current assets
Non-current assets increased by R101 million to R1 076 million from 30 June 2010
as a result of an increase in Property, plant and equipment of R11 million and
an increase of R74 million in Intangible assets (goodwill) in respect of the
acquisition of Zonke.
The R78 million increase in Property, plant and equipment is net of a R62
million depreciation charge (31 December 2009: R49 million) and disposals of R5
million for the period. Of the R75 million additions in Property, plant and
equipment R62 million relates to the expansion of the business.
Current assets
The reduction in Current assets to R1 143 million from R1 753 million at 30 June
2010 resulted from a R460 million debt repayment received from Mvelaphanda.
Despite the increase in Group revenue, Trade and other receivables decreased by
8% to R801 million from 30 June 2010, as a result of improved working capital
management. Inventories increased marginally to R47 million from R42 million.
Cash decreased by R85 million to R289 million at 31 December 2010, mainly due to
the reduction in debt.
Capital and reserves
Mvelaserve altered its Share capital by first implementing a share split of each
share of R1 into 794 560 ordinary shares of R0,00012585581957 each. This
resulted in an increase in the authorised number of ordinary shares to 794 560
000 and the issued ordinary share capital to 79 456 000 ordinary shares of
R0,00012585581957 each. Subsequently 294 560 000 ordinary shares from the
authorised share capital were cancelled. The entire authorised and issued share
capital was converted from ordinary shares with a par value to ordinary shares
with no par value on 7 October 2010. A further 62 105 673 ordinary shares with a
subscription price of R734 287 804 were issued during the period resulting in a
total issued share capital of 141 561 673 no par value ordinary shares at R734
287 904, and 500 000 000 authorised no par value ordinary shares.
Mvelaphanda distributed its Mvelaserve shares to its shareholders on 6 December
2010 following the listing of Mvelaserve ordinary shares in the "Business
Support Services" sector of the JSE on 29 November 2010.
Non-current liabilities
Total Non-current liabilities reduced by R960 million to R407 million from R1
367 million at 30 June 2010. This included R722 million owed to Mvelaphanda,
which was settled during the period. Preference share funding of R482 million at
30 June 2010, was redeemed on 30 October 2010 from cash resources and new long-
term debt, bringing interest-bearing liabilities, excluding asset finance of
R187 million, to R253 million. Total interest-bearing liabilities, including the
short-term portion, amounted to R441 million at 31 December 2010 (30 June 2010:
R784 million).
Current liabilities
Included in Current liabilities at 30 June 2010 was an amount owed to
Mvelaphanda of R230 million, of which R191 million was settled before the
unbundling of Mvelaserve. Other current liabilities decreased 10% to R837
million from R936 million at 30 June 2010.
Operational review
Facilities Management Services Division
As anticipated, operating margins decreased from 15% to 13% following the
renewal of the Telkom contract. The Division continued to benefit from
non-Telkom related business growth with new contract wins, resulting in a
marginal revenue increase of 2% to R553 million from R538 million. Significant
progress is underway towards expanding and diversifying the operation`s customer
base and contract risk profile.
Security Division
The Security Division maintained its strong growth, driven by organic growth
through contract extensions and new contract wins. Revenue and operating profit
increased by 25% and 48%, respectively, to R959 million and R62 million. This
division is expected to continue to grow, notwithstanding the current
challenging market conditions.
Catering and Cleaning Services Division
Revenue grew 34% to R578 million. However, the operating margin decreased to
0,8% from 1,3% as a result of the restructuring of the businesses taking longer
than anticipated. Loss-making contracts in the Catering Division are in the
process of being addressed, which should result in improved margins going
forward.
Diversified Services Division
Revenue increased by 27% to R193 million and operating profit (excluding Head
Office expenses) by 31% to R20 million. Freight services provider, Contract
Forwarding, boosted revenue by 18% off the back of an improvement in the
import/export markets. The franchise business of Khuseti remained flat in light
of the prevailing economic conditions, resulting in a small increase in revenue
of only 7%. Margins remained under pressure due to the slow economic recovery
and rising food inflation. Zonke monitors limited payout machines ("LPM`s")
across South Africa, was acquired from Mvelaphanda during the latter part of the
period. The company is currently showing good growth with the number of LPM`s
increasing in line with expectations. Circle ICT Solutions was established in
July 2010 and contributed modestly to Group turnover for the period. The company
provides IT support, hosting, application development and hardware to other
Group companies and external clients. SA Water, a one-stop advanced water
treatment solution company, was acquired during December 2010. The latter three
companies are expected to begin contributing to Group profits in the six months
ahead to year-end.
Capital commitments
31 December 31 December
2010 2009
Capital expenditure
Contracted for 30 446 37 590
Not contracted for 8 339 8 636
38 785 46 226
Operating leases
Land and buildings - 6 032
Equipment 5 525 2 603
Motor vehicles 33 260 37 591
38 785 46 226
Dividend
The directors of Mvelaserve have resolved not to declare an interim dividend for
the period. The dividend policy targets a dividend cover of approximately 2,5
times, but will be dependent on the operating results, financial position,
investment strategy and capital requirements of the Group at the declaration
date.
Prospects
The services industry in South Africa is intrinsically linked to the growth in
global as well as domestic business and consumer markets. Following the global
financial crisis, South Africa is tentatively emerging from recession into slow
economic recovery. This has been assisted by improved fundamentals such as lower
interest rates and rising consumer demand. Through a strict focus on outsourced
services, Mvelaserve has consistently demonstrated resilience to economic
volatility. In the opinion of the directors, the Group is well positioned to
take advantage of this economic recovery in South Africa and the rest of the
continent. The Group will continue to drive organic growth through ongoing
partnering with clients in the management of their non-core business operations.
In addition, Mvelaserve will continue to pursue strategic acquisitions to expand
and further diversify its services offering.
M S M Xayiya J M S Ferreira
Chairman Chief Executive Officer
10 March 2011
Executive Directors: M S M Xayiya (Chairman), J M S Ferreira (Chief Executive
Officer), G E Roth (Chief Financial Officer)
Independent Non-Executive Directors: GD Harlow, OA Mabandla*, FN Mantashe, S
Masinga, N Mbalula, *Lead Independent director Registered Office: 28
Eddington Crescent, Highveld Technopark, Centurion, 0169
Sponsor: Investec Bank Limited
Auditors: PKF (JHB) Inc.
Transfer Secretaries: Computershare Investor Services (Proprietary) Limited, 70
Marshall Street, Johannesburg, 2001
Date: 10/03/2011 08:01:18 Supplied by www.sharenet.co.za
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