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MOR - Morvest Business Group Limited - Abridged audited consolidated financial
statements for the year ended 31 May 2011 and dividend declaration
Morvest Business Group Limited
(Previously Simeka Business Group Limited)
(Incorporated in the Republic of South Africa)
(Registration number 2003/012583/06)
JSE code: MOR ISIN: ZAE000152567
("Morvest" or "the Company" or "the Group")
ABRIDGED AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MAY
2011 AND DIVIDEND DECLARATION
Highlights
* Maiden dividend of 1 cent per share
* Cash generated by operations up 29%
* EBITDA up 36%
* Revenue up 16%
* Cash reserves of R84.5 million
* Headline earnings up 18%
* Headline earnings per share up 20% to 6 cents
Abridged consolidated statement of comprehensive income
Audited Audited
Year ended Year ended
31 May 31 May
2011 2010
R`000 R`000
Revenue 807 300 697 005
Turnover 807 300 693 830
Cost of sales (420 262) (402 286)
Gross profit 387 038 291 544
EBITDA (earnings before interest, 104 782 77 319
impairment, tax, depreciation and
amortisation)
Depreciation (15 139) (13 002)
Amortisation of intangible assets (2 003) (4 685)
Impairment of goodwill and intangible (14 938) (271 059)
assets
Impairment of investments - (556)
Impairment of investment in associate (5 951) -
Net finance costs (12 556) (21 313)
Profit/(loss) before taxation 54 195 (233 296)
Income tax expense (24 075) (4 518)
Profit/(loss) for the year 30 120 (237 814)
Other comprehensive income for the year, (7 039) 118
net of tax
Total comprehensive income/(loss) for the 23 081 (237 696)
year
Profit/(loss) attributable to:
Owners of the parent 11 469 (242 914)
Non-controlling interest 18 651 5 100
Total comprehensive income/(loss)
attributable to:
Owners of the parent 4 430 (242 796)
Non-controlling interest 18 651 5 100
Total comprehensive income/(loss)for the 23 081 (237 696)
year
Earnings/(loss) per share (cents) 2.13 (44.70)
Diluted earnings/(loss) per share (cents) 1.83 (44.70)
Notes to the statement of comprehensive
income
Headline earnings for the year 32 334 27 351
attributable to ordinary shareholders
Headline earnings per share 6.02 5.03
Diluted headline earnings per share 5.17 5.03
Number of shares (`000)
Weighted average number of shares 537 319 543 414
Diluted weighted average number of shares
in issue and to be issued 625 236 543 414
Reconciliation of headline earnings
calculation:
Earnings for the year attributable to 11 469 (242 914)
ordinary shareholders
Goodwill impairment 14 938 230 295
Intangible assets impairment - 29 350
Loss on disposal of subsidiaries and - 10 004
associates
Impairment of investment in associate 5 951 -
Impairment of loans to subsidiaries - 556
(Profit)/loss on disposal of property, (24) 60
plant and equipment
Headline earnings for the year
attributable to ordinary shareholders 32 334 27 351
Abridged consolidated statement of Audited Audited
financial position 31 May 2011 31 May 2010
R`000 R`000
ASSETS
Non-current assets 302 563 263 177
Property, plant and equipment 33 964 37 846
Goodwill 214 001 180 709
Intangible assets 5 473 4 519
Other financial assets - 3 613
Investment in associate company 9 157 3 789
Deferred taxation 39 968 32 701
Current assets 251 518 211 111
Inventories 19 702 9 624
Trade and other receivables 130 824 100 124
Other financial assets 5 373 871
Taxation receivable 10 607 5 182
Operating lease assets 258 113
Cash and cash equivalents 84 754 95 197
Total assets 554 081 474 288
EQUITY AND LIABILITIES
Capital and reserves 222 053 219 056
Share capital 298 613 300 742
Foreign currency translation reserve (13 021) (6 035)
Accumulated loss (64 342) (75 811)
Available-for-sale financial reserve 107 160
Share based payment reserve 696 -
Non-controlling interest 21 079 6 629
Total equity 243 132 225 685
Non-current liabilities 73 243 94 273
Vendor liabilities 22 170 -
Other financial liabilities 44 347 88 221
Finance lease obligations 2 614 2 465
Deferred taxation 4 112 3 587
Current liabilities 237 706 154 330
Vendor liabilities 14 084 -
Other financial liabilities 49 418 47 456
Finance lease obligations 9 272 5 091
Trade and other payables 145 283 81 481
Provisions 3 786 2 930
Bank overdraft - 1 398
Operating lease liabilities 1 154 1 038
Current tax payable 14 709 14 936
Total equity and liabilities 554 081 474 288
Total number of shares in issue (`000) 679 159 602 016
Total number of shares in issue after
treasury shares (`000) 663 425 544 637
Net asset value per share (cents) 33.47 40.22
Net tangible asset value per share (cents) 0.39 6.21
Abridged consolidated statement of cash flows
Audited Audited
Year ended Year ended
31 May 31 May
2011 2010
R`000 R`000
Net cash flows from operating activities 62 075 48 113
Net cash flows from investing activities (18 963) (23 688)
Net cash flows from financing activities (52 157) (22 712)
Net (decrease)/increase in cash and cash (9 045) 1 713
equivalents
Cash and cash equivalents at beginning of 93 799 92 086
year
Cash and cash equivalents at end of year 84 754 93 799
Abridged consolidated statement of changes in equity
Audited Audited
Year ended Year ended
31 May 31 May
2011 2010
R`000 R`000
Equity - opening balance 225 685 482 216
Issue of share capital 12 343 -
Treasury shares issued for BEECo share 9 257 -
scheme
Shares utilised for BEECo and MANCo share (21 599) (53 700)
schemes
Share based payment expense 696 -
Share repurchase (2 130) (662)
Acquisition of subsidiaries and businesses - 49 034
Non-controlling interest acquired 3 023 -
Disposal of subsidiaries 2 600 (712)
Total comprehensive income/(loss)for the 23 081 (237 696)
year
Dividend paid to non-controlling interest (9 824) (12 795)
Equity - closing balance 243 132 225 685
Basis of preparation
The audited abridged consolidated annual financial statements have been prepared
in accordance and comply with International Financial Reporting Standards and
are presented in terms of the disclosure requirements set out in IAS 34: Interim
Financial Reporting as well as AC 500 standards as issued by the Accounting
Practices Board or its successor, the JSE Limited Listings Requirements and in
the manner required by the Companies Act. These results must be read in
conjunction with the most recently issued annual financial statements.
The audited abridged consolidated annual financial statements are based on
appropriate accounting policies, consistently applied with those in the audited
financial statements for the previous year ended 31 May 2010, which are
supported by reasonable and prudent judgements and estimates.
Unqualified audit opinion
The abridged consolidated annual financial results have been audited by the
company`s auditors, PKF (Pta) Inc. Their unqualified audit report is available
for inspection at the company`s registered office.
Commentary
Introduction
The directors of Morvest present the audited abridged consolidated financial
results for the year ended 31 May 2011 ("the year") reflecting the resilience
and fundamental strength of the Group`s underlying businesses. Commendable
growth was achieved in revenue, EBITDA and headline earnings per share despite
depressed market conditions.
The year was further defined by a number of strategic advancements, one of which
was a transfer from AltX to the JSE Main Board in line with the Group`s maturity
over time (see `Main board listing` below). The Group`s restructure was also
successfully completed and the foundation laid for further streamlining of the
legal structure in the year ahead (See `Operational overview` below). Morvest
has also declared a maiden dividend (see `Dividend declaration` below).
The audited abridged consolidated financial statements for the year were
authorised for issue by the directors on 12 August 2011.
Group profile
Morvest is a black-empowered business support services and ICT Group with an
international geographic footprint spanning South Africa, Africa, India and USA.
The Group`s operations are aligned into two key divisions: Business Support
Services, which includes Professional Services and Outsourcing; and ICT. By
combining the niche offerings of its divisions Morvest is able to offer bespoke,
comprehensive client solutions.
Operational overview
Although market conditions are expected to remain challenging in a number of
Group key markets, particularly in South Africa over the next 12 to 18 months,
Morvest continues to boast a strong, sustainable five year pipeline.
The domestic operations performed well for the year reporting satisfactory
margin growth following the Group`s restructure.
Further, the successful conclusion of the BEE transaction during the year
enhanced Morvest`s BEE credentials to Level 2. The commitment of key executives
and management of their existing equity and their assumption of personal
liabilities for participation over the next five to seven years resulted in
contract renewals and new contract wins in both key divisions.
Nigeria
The Group has expanded its ICT offerings in this market by the introduction of
Intergraph services to the energy sector, which in turn provided a platform for
the introduction of all other Group offerings at a launch in Lagos in June 2011.
India joint venture
The Group`s joint venture with an India-based entity has successfully helped
counter pricing competition from the East, and has created additional capacity
for servicing Africa.
Name change
During the year the board proposed a name change from "Simeka Business Group
Limited" to "Morvest Business Group Limited". The rationale for the name change
included addressing ongoing confusion in the market with similarly named
entities in different sectors.
Board strengthened
In line with a commitment to continually improving governance and enhancing
sustainability, during the year Morvest appointed Professor Ben Marx as an
independent non-executive director and chairman of the Audit and Risk Committee,
as well as Ahmed Mohammadali Haji as an independent non-executive director and
member of the Audit and Risk Committee post year end.
Share repurchase programme
During the year the Company repurchased 13 million shares with a value of
R2.1 million on the open market. Morvest intends to continue repurchasing shares
subject to appropriate timing and in compliance with the Companies Act and JSE
Limited Listings Requirements.
Financial results
Revenue increased 16% to R807 million from R697 million in the prior year. The
revenue is all organic and South Africa accounted for 90%.
EBITDA amounted to R104.7 million (2010: R77.3 million) reflecting an EBITDA
margin of 13%, up 11% from the previous year. This growth was achieved through
careful cost management, utilisation of the India operation and realising the
benefits of the Group restructure.
Dividend declaration
On 12 August 2011 the board approved and resolved to declare a maiden dividend
for the Group of 1 cent per share for the year.
The salient dates relating to the ordinary dividend are as follows:
Last day to trade cum the Friday, 2 September 2011
ordinary dividend
Ordinary shares commence Monday, 5 September 2011
trading ex dividend
Ordinary dividend record date Friday, 9 September 2011
Payment date of ordinary Monday, 12 September 2011
dividend
Ordinary share certificates may not be dematerialised or rematerialised between
Monday, 5 September 2011 and Friday, 9 September 2011, both dates inclusive.
Goodwill
The carrying amount of goodwill as at 31 May 2011 was R214 001 000. During the
year, goodwill of R48 230 000 was raised on the acquisition of R and S
Consulting (Proprietary) Limited ("R and S Consulting")(see `Acquisition`
below).
Through the annual goodwill impairment test for the year, an impairment of R14
938 000 (31 May 2010: R230 295 000) was recognised.
Segmental reporting
The Business Support Services (Professional Services and Outsourcing) division
contributed 65% of Group revenue and the Technology division the balance of 35%.
Business Technology Corporate and Total
Support elimination
Services
May 11 May 10 May 11 May 10 May 11 May 10 May 11 May 10
R`000 R`000 R`000 R`000 R`000 R`000 R`000 R`000
External 520 427 286 266 - -
segment 711 569 589 261
turnover
Internal 5 594 46 567 31 420 24 167 (37 (70
segment 014) 734)
turnover
Total 526 474 318 290 (37 (70 807 693 830
segment 305 136 009 428 014) 734) 300
turnover
Profit/(l 52 796 66 465 31 786 28 909 (54 (333 30 120 (237
oss) for 462) 188) 814)
the year
Total 537 403 178 132 (161 (61 554 474 288
assets 200 341 446 039 565) 092) 081
Total 293 118 118 105 100 371 (24 310 248 603
liabiliti 024 063 296 978 562) 949
es
Share based payments
"BEECo" and "MANCo" share schemes
In October 2010, shareholders approved the "BEECo" & "MANCo" share schemes, a
collective B-BBEE transaction which resulted in the transfer to key executives
and management of beneficial ownership of 20% (135 million shares) of Morvest`s
issued share capital. The transaction was designed to secure improved
sustainable long-term BEE credentials for Morvest as well as to assist Morvest
in meeting its general empowerment objectives and alignment of key management.
% Value of Share-
Allocated shares based
issued payment
2011R`000 expense
recognised
2011R`000
BEECo
17 18 360 584
MANCo
3 3 240 112
20 21 600 696
The BEECo shares rank pari passu in all respects with existing shares in issue,
including but not limited to full voting and participation rights. The above
schemes are being financed through a redeemable preference share structure
between Morvest and the share scheme entities.
Acquisition
On 25 May 2011, the Group acquired a 50.1% interest in R and S Consulting for a
fair value purchase consideration of R50.1 million. An initial payment of R15
million was made on the effective transaction date, while the remaining balance
of R35.1 million is payable subject to the achievement of annual PAT targets
over a four year period and improved net asset value over the next six months as
per the acquisition agreement. The final payment is payable on the 2014 results.
R and S Consulting is a leader in providing enabling technologies for conceptual
solutions and execution capability in the niche area of mobile data. As such, it
has expertise in an array of specialist disciplines that include GSM, RFID and
smart card technologies.
Group
Acquisiti provisiona Recognise
on l fair d values
carrying value on
amount adjustment acquisiti
s on
R`000 R`000 R`000
Property, plant &
equipment 3 586 3 586 3 586
Inventories
51 51 51
Trade and other
receivables 6 099 6 099 6 099
Other financial assets
1 044 1 044 1 044
Cash and cash
equivalents 6 207 6 207 6 207
Finance lease
obligation (2 264) (2 264) (2 264)
Trade and other
payables (2 069) (2 069) (2 069)
Current tax payable
(6 607) (6 607) (6 607)
Non-controlling (3 023) (3 023) (3 023)
interest
Net identifiable assets and
liabilities 3 024 3 024 3 024
Goodwill on acquisition 48 230
Total consideration 51 254
Contingent consideration 36 254
Consideration paid in 15 000
cash
Total consideration 51 254
Consideration paid in 15 000
cash
Cash acquired (6 207)
Net cash outflow 8 793
The acquisition is based on provisional fair values as the Group has not yet
determined the fair values of the identifiable assets, liabilities and or
contingent liabilities. The fair value of the subsidiary will be accurately
determined by the next reporting date.
The goodwill from the acquisition is mainly attributable to the skills and
technical talent of the acquired business`s work force, and the synergies
expected to be achieved from integrating the acquiree into the Group`s existing
ICT segment.
Subsequent to the reporting date, the Group has paid an additional
R2 million to the vendors of R and S Consulting for the improvement of the net
tangible assets by R3 million as per the acquisition agreement.
Related parties
During the year certain related parties, in the ordinary course of business,
entered into various loans and transactions with the Group under arms-length
terms no less favourable than those arranged with third parties.
Contingent liabilities
The Business Systems Group Limited and Pha-Phama contingent liabilities as
disclosed in the previous 2010 annual report were resolved to the mutual
satisfaction of the parties during the year.
Subsequent events
Dividend declaration
On 12 August 2011 the board of directors approved and resolved to declare a
maiden dividend for the Group of 1 cent per share for the year (2010:Nil) (see
`Dividend` above for salient dates).
Main board listing
On 20 June 2011, Morvest`s listing was transferred from AltX to the JSE Main
Board in the "Business Support Services (2791)" sector. The authorised share
capital of Morvest transferred to the JSE Main Board totalled R150 000
comprising 1 500 000 000 ordinary shares of R0.0001 each and the issued share
capital totalled R67 916 comprising 679 158 613 ordinary shares of R0.0001 each.
The nature of business of Morvest will remain the provision of business support
services including professional services, outsourcing and ICT solutions.
Changes to the board
On 15 June 2011 A Evan was appointed to the board as an executive director and A
Mohammadali Haji was appointed to the board as an independent non-executive
director.
Acquisition of property for future head office
On 4 July 2011 Morvest Properties (Proprietary) Limited`s offer to purchase the
vacant land in the Midrand area for a total consideration of R17.1 million was
accepted. Construction of a new Group head office will commence in the final
quarter of 2011 and should be complete in the second quarter of 2013. It is
anticipated that all entities currently housed in the Sunninghill head office as
well as two locations in Centurion will move to the new head office. The
estimated cost of construction is R50 million.
Investec facilities
Morvest is proposing to enter into an agreement with Investec Bank Limited to
obtain additional facilities for the payment of vendor liabilities and the
acquisition of the new property and development of the new head office.
Following the additional facilities, the current facility will be restructured
into one loan agreement.
Settlement of Nedbank facility
In June 2011 the remaining capital outstanding on the Nedbank loan facility of
R4 million was settled in full.
Circular to shareholders
On 25 July 2011 a circular was posted to shareholders to seek approval for the
granting by Morvest of financial assistance to any company or corporation
forming part of the Group as contemplated in section 45 of the Companies Act 71
of 2008.
Outlook
Looking ahead the directors are confident that the Group has established a solid
platform for long-term growth. Nonetheless the board continues to foresee a
challenging 12 to 18 month period ahead due to difficult macroeconomic
conditions.
The maintenance of BEE equity ownership remains a focus as an imperative to
maintaining existing and securing new contracts.
Expansion further into Africa and internationally is a key strategic objective
for the next 12 to 18 months, as significant growth opportunities in the
emerging markets - primarily in outsourcing; ICT, resourcing; training and
education - could offer an attractive counter to anticipated tough conditions
locally.
Appreciation
This has been a milestone year for the Group, and the sheer hard work and
enthusiasm of the entire team are responsible for our achievements. We
appreciate the contribution of every single employee and look forward to working
together to maintain our momentum.
We thank all our shareholders, business associates and customers for their
loyalty and will endeavour to continue earning their confidence.
By order of the board
Mohammed Varachia Suren Singh
CEO CFO
17 August 2011
Directors: Dr PS Molefe (Chairman)*#, M Varachia (CEO), S Singh (CFO), M
Papiyana (Group HR Director), N Singh (Executive Director), A Evan (Executive
Director),B Marx*#, A Mohammadali Haji*#, NY Mhinga*#
(*Non-executive, #independent)
Registered office: 10 Kikuyu Road, Sunninghill, 2191 (PO Box 4307, Halfway
House, Midrand, 1685)
Transfer secretaries: Computershare Investor Services (Proprietary) Limited,
70 Marshall Street, Johannesburg (PO Box 61051, Marshalltown, 2107)
Company secretary: Noelene Beryl January, 10 Kikuyu Road, Sunninghill (PO Box
4307, Halfway House, Midrand, 1685)
Sponsor: Sasfin Capital (a division of Sasfin Bank Limited)
Date: 17/08/2011 07:05:01 Supplied by www.sharenet.co.za
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