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Provisional consolidated condensed reviewed financial statements for the fifteen months ended 31 May 2012
IQuad Group Limited
(Incorporated in the Republic of South Africa)
Registration number 2004/025177/06
Share code: IQG ISIN: ZAE000101622
(“IQuad”, “the Company” or “the Group”)
Provisional consolidated condensed reviewed financial statements for the
fifteen months ended 31 May 2012
Highlights
Net tangible assets per share up 7%
Annualised headline earnings per share up 39%
Commentary on results for the financial year ended 31 May 2012
The acquisition by Sasfin Holdings Limited (“Sasfin”) of a majority
interest in the IQuad Group has necessitated a change in our year-end from
February to June. Due to Companies Act restrictions, this change will be
made in two stages, with the first change being to 31 May in 2012, and
thereafter to 30 June 2013. As a result of the above, the 15 month period
to 31 May 2012 is reported as a financial year.
General comments and prospects
Overall headline earnings for the 15 months ended 31 May 2012 increased by
73.4% from R10.22 million for the 12 month period ended 28 February 2011
to R17.73 million for the current financial year. This equates to an
annualised increase of 39%. We are extremely pleased with this result
achieved under continuingly difficult trading conditions.
This achievement was made possible through strong performances from our
Global Trade and Treasury Outsourcing businesses, combined with the
successes achieved in rationalising non-core businesses and implementing a
range of group-wide cost-saving initiatives.
Strategic update
We remain committed to our overall mission to be the preferred supplier of
high-impact strategic outsource and compliance services to businesses.
Our medium-term strategic priorities identified at the beginning of 2011
yielded the desired outcomes and are borne out through the much improved
financial performance of the Group. The following is a brief update on
various strategic initiatives:
1. Ensure the right team is in place to achieve the growth plan
Our simplified and streamlined management structure (“MANCO”), represented
by the heads of the major business units together with the CEO and
financial director, have worked well together as a team.
2. Win in the Gauteng market
Our ongoing focus on Gauteng as a primary and key growth market continues
yielding positive results. New clients engaged in our Gauteng incentives
consulting operation have shown a marked increase, in spite of the
difficult trading outlook in the manufacturing sector. Our alliance with
Sasfin has increased our indirect sales force in the Gauteng market and
cross selling has been identified as a key future growth opportunity.
3. Fix or exit underperforming businesses
As reported in the interim results, this has been a key focus area in the
current reporting period. Our effort to streamline the business and focus
on the key business units in the Group has achieved the desired result
from a profitability perspective. As previously reported, we have
concluded our exit from IQuad Verification Services (Pty) Ltd, IQuad
Finance Solutions (Pty) Ltd and IQuad Technologies (Pty) Ltd during the
reporting period. We have seen an overall reduction in the number of
active trading entities from a total of 19 down to 12 at present. This has
improved our ability to focus on the true value-adding areas of the Group.
Our strategy will continue focusing on businesses that display the
potential to grow into substantial profit contributors and exit those with
limited potential.
4. Grow inorganically through significant acquisitions
The acquisition by Sasfin of a majority share in the IQuad Group has
created some natural growth opportunities within the Group. These growth
opportunities will be the focus of our acquisitive activities in the short
to medium term. At the same time, we will remain on the lookout for
competitor acquisitions to bolster our pillar activities.
5. Identify cost savings
It is very pleasing to see that we exceeded our goal to identify and
implement cost savings amounting to at least 5% of our budgeted
expenditure for the period under review.
Segment report
Investment incentives
Improved processing throughput by the Department of Trade and Industry
(“dti”) resulted in increased revenues during the latter part of the
reporting period. However, the improvement was not enough to compensate
for cumulative budget shortfalls, resulting in a disappointing performance
from this segment of our business.
Global trade services
Our global trade segment is collectively made up of IQuad Global Trade,
our specialist import/export administration division, and IQuad Treasury
Solutions, our foreign exchange risk management and execution business.
Both business units delivered excellent results under difficult trading
conditions.
IQuad Global Trade continues carving out a unique space as a niche service
provider to importers and exporters in areas such as duty optimisation,
motor industry development programme (“MIDP”) and automotive and
production development programme (“APDP”) claims administration and export
process optimisation. The business has been successful in diversifying
income streams away from key clients/industry segments and this will
remain a key strategic priority going forward.
IQuad Treasury Solutions performed well in the second half of the period
and generated increased performance-related revenue on the back of risk
management strategies implemented on behalf of clients to optimise the
impact of exchange rate movements.
The Kagiso Treasury acquisition has been fully integrated into IQuad
Treasury and the synergies are expected to have a positive impact going
forward.
Business development services
This segment of IQuad remains relatively small in comparison to the above
pillars. However, IQuad Integrated Management Systems (Pty) Ltd, which
provides management advisory services on compliance with international or
industry standards, continues showing good overall profit growth. The
alternative energy and carbon footprint reduction drive further provides
opportunities in this area of our business.
Audit and verification services
We remain active in the BEE certification and advisory industry through
our majority stake in Integra Scores (Pty) Ltd (“Integra”). This industry
faces unique challenges from a regulatory and policy clarity perspective.
However, we are very pleased with the revenue growth and profit
contribution of Integra during the reporting period.
Cash flow
The Group generated R27.8 million cash from its operating activities
during the period under review. This is largely due to additional working
capital arising from disposals of subsidiaries and loans receivable having
been repaid to the Group.
Consolidated statement of financial position as at 31 May 2012
Reviewed Audited
31-May-12 28-Feb-11
R’000 R’000
Assets
Non-current assets 105 604 111 428
Investment property 14 434 14 434
Property, plant and equipment 14 006 14 163
Goodwill 66 375 65 524
Intangible assets 5 680 4 430
Investment in associates 1 018 -
Loan receivable - 3 278
Operating lease rentals asset 200 -
Deferred tax assets 3 891 9 599
Current assets 36 740 33 660
Work in progress 2 551 1 927
Tax assets 256 676
Trade and other receivables 24 608 26 408
Amounts owing by associates and joint ventures 2 283 787
Cash and cash equivalents 7 042 3 862
Total assets 142 344 145 088
Equity and Liabilities
Equity and reserves 116 731 108 792
Share capital 101 200 101 200
Other reserves - (369)
Accumulated profits 14 186 9 776
Non-controlling interest 1 345 (1 815)
Non-current liabilities 1 204 15 279
Deferred tax liabilities 762 560
Operating lease rentals liability 435 421
Borrowings 7 14 298
Current liabilities 24 409 21 017
Tax liabilities 889 304
Trade and other payables 12 536 12 064
Provisions - 25
Dividend payable - 750
Borrowings 10 984 7 874
Total liabilities 25 613 36 296
Total equity and liabilities 142 344 145 088
Consolidated statement of comprehensive income
for the financial year ended 31 May 2012
Reviewed Audited
15 months
ended 31 Year ended
May 2012 28-Feb-11
R’000 R’000
Revenue 106 736 85 628
Cost of services rendered (40 129) (38 625)
Gross profit 66 607 47 003
Other operating income 734 601
Operating expenses (47 758) (62 365)
Operating profit/(loss) 19 583 (14 761)
Investment income 3 821 3 553
Share of profits of associate companies 678 -
Finance costs (1 667) (2 099)
Profit/(loss) before taxation 22 415 (13 307)
Taxation (8 833) (4 062)
Profit / (loss) and total comprehensive
income / (loss) for the financial year 13 582 (17 369)
Profit / (loss) and total comprehensive
income / (loss) for the financial year
attributable to: 13 582 (17 369)
Non-controlling interest 189 (1 800)
Owners of the parent 13 393 (15 569)
Basic and diluted earnings / (loss) per
share (cents) 48,9 (56,9)
Condensed consolidated statement of changes in equity
for the financial year ended 31 May 2012
Attributab
le to
equity Non-
holders of controlling Total
Company interest equity
R’000 R’000 R’000
Balance at 1 March 2010 - audited 135 954 2 013 137 967
Total comprehensive loss for the year (15 569) (1 800) (17 369)
Acquisition of non-controlling
interest in subsidiary (1 993) (331) (2 324)
Other movements in non-controlling
interests - (241) (241)
Dividends (7 785) (1 456) (9 241)
Balance at 28 February 2011 - audited 110 607 (1 815) 108 792
Total comprehensive income for the
financial year 13 393 189 13 582
Business combinations - 1 197 1 197
Acquisition of non-controlling
interest in subsidiary (1 866) 1 866 -
Share reserve converted to loan
receivable 369 - 369
Other movements in non-controlling
interests - 576 576
Dividends (7 117) (668) (7 785)
Balance at 31 May 2012 - reviewed 115 386 1 345 116 731
Consolidated condensed statements of cash flows
for the financial year ended 31 May 2012
Reviewed Audited
31-May-12 28-Feb-11
R’000 R’000
Cash generated from operations 27 790 12 525
Investment income received 3 446 3 303
Finance costs paid (1 600) (2 066)
Net tax paid (6 765) (8 144)
Cash flows from operating activities 22 871 5 618
Additions to investment property - (1 343)
Acquisition of property, plant and equipment (1 743) (1 987)
Proceeds on disposal of property, plant and
equipment 142 51
Business combinations (838) (3 583)
Disposals of investments in subsidiaries 3 431 (194)
Deconsolidation of subsidiary (63)
Acquisition of intangible assets (2 561) (1 334)
Additions to non-current asset held for sale - (1 100)
Proceeds on disposal of non-current asset held
for sale - 11 800
Cash flow on consolidation of non-current asset
held for sale - 98
Contingent consideration paid (900) (265)
Cash flows from investing activities (2 532) 2 143
Amounts advanced to associates and joint venture (242) (265)
Non-controlling interests' loans repaid - (238)
Loans receivable advanced 2 489 -
Borrowings (repaid)/advanced (11 221) 241
Acquisition of additional shares in subsidiary
from non-controlling interest (400) (2 324)
Dividends paid (7 785) (8 492)
Cash flows from financing activities (17 159) (11 078)
Net increase/(decrease) in cash and cash
equivalents 3 180 (3 317)
Cash and cash equivalents at beginning of
financial year 3 862 7 179
Cash and cash equivalents at the end of the
financial year 7 042 3 862
Selected explanatory notes
Basis of preparation and accounting policies
This provisional consolidated condensed financial report has been compiled
in accordance with IAS 34: Interim Financial Reporting; International
Financial Reporting Standards (“IFRS”); the Companies Act of South Africa
as well as AC 500 standards and the JSE Limited Listings Requirements. The
accounting policies and critical accounting estimates and judgements
applied to this financial report are consistent with those applied for the
year ended 28 February 2011. This report was prepared under the
supervision of the financial director, Frans Botha CA(SA).
Financial results
The Company’s auditors, PKF (JHB) Inc., have reviewed the provisional
condensed consolidated financial statements for the financial year ended
31 May 2012. Their unqualified review opinion is available for inspection
at the registered office of the Company.
Business combinations
51% of Integra was acquired on 1 March 2011 for a total consideration of
R3 104 828. The purchase consideration was partially settled by converting
an existing loan of R1 095 000 to shares and Integra issued ordinary
shares to the value of R1 291 444 to the Company, which were paid for by
transferring intangible assets to the same value to Integra.
The balance of the purchase consideration of R718 384 was settled in cash.
Goodwill of R1 858 547 arose on the transaction and is attributable to
Integra's business methodology and operating model.
The business combination contributed revenue of R8 621 326 and profit
after tax of R804 394 to the Group since the date of acquisition.
The respective book and fair values acquired in business combinations
during the financial year are as follows:
Reviewed Reviewed
Book values Fair values
R’000 R’000
Property, plant and equipment 40 40
Deferred tax asset 438 438
Trade and other receivables net of impairment 87 87
Cash and cash equivalents 163 163
Trade and other payables (601) (601)
Intangible assets 1 291 2 600
Net assets acquired 1 418 2 727
Non-controlling interest (1 197)
Loan advanced to associate and joint venture,
now consolidated (841)
Goodwill 2 416
Purchase price 3 105
Cash and cash equivalents (163)
Amount included in trade and other receivables 282
Part-payment in shares (1 291)
Loan converted to equity (1 095)
Cash outflow on business combination 838
Reviewed Audited
A reconciliation of the Group's goodwill is as 31-May-12 28-Feb-11
follows:
R’000 R’000
Opening balance 65 524 87 006
Additions through business combinations 2 367 3 472
Adjustment to initial accounting of business
combination 49 -
Adjustments through contingent considerations - 259
Impairment losses (557) (25 213)
Deconsolidation of subsidiaries (1 003) -
Disposal of shares in subsidiaries (5) -
Closing balance 66 375 65 524
Changes in investments
On 1 March 2011 the Group disposed of 12.6% of the interest in IQuad
Technologies (Pty) Ltd for a consideration of R1 cash. Consequently the
Group lost control and the investment has been equity-accounted from
disposal date. The investment and related loans were measured at fair
value and a Group loss of R 3 339 169 arose on the transaction.
On 1 August the Group disposed of its entire interest in IQuad
Verification Services (Pty) Ltd for a consideration of R1 500 000 and at a
Group loss of R795 217. The proceeds have been settled in full.
On 1 March 2011 the Group ceased accounting for IDEC Consulting Service
(Pty) Ltd "IDEC" as a subsidiary and has equity-accounted the investment
from that date. No profit or loss arose as a result of the
deconsolidation. The deconsolidation arose as the Group no longer
controlled the company.
The book values of the entities disposed of during the year
are as follows: Reviewed
R’000
Non-current loans payable (492)
Goodwill 5
Property, plant and equipment 281
Intangible assets 497
Trade and other receivables 2 146
Cash and cash equivalents 699
Trade and other payables (1 744)
Deferred tax 5 613
Net assets disposed of 7 005
Non-controlling interests 2 180
Loan to associate retained (921)
Profit/loss on disposal (4 134)
Proceeds on disposal 4 130
Cash and cash equivalents (699)
Net cash outflow on disposals of subsidiaries 3 431
The book values of entities deconsolidated during the
financial year are as follows: Reviewed
R’000
Goodwill 1 003
Property, plant and equipment 32
Intangible assets 80
Trade and other receivables 3 038
Cash and cash equivalents 63
Trade and other payables (1 048)
Tax payable (116)
Deferred tax (212)
Net assets disposed of 2 840
Non-controlling interests (603)
Investment in associate retained (1 465)
Loan to associate retained (750)
Profit/loss on disposal (22)
Proceeds on disposal -
Cash and cash equivalents (63)
Net cash outflow on disposals of subsidiaries (63)
On 1 December 2011 the Group acquired the non-controlling interests in an
existing subsidiary, IQuad Property Investment (Pty) Ltd. The shares were
acquired for R1 and a loan for R400 000, resulting in a Group gain of R563
572 on the transaction.
The transaction did not result in a change of control and was accounted
for as an equity transaction as per IAS 27 (revised).
Reviewed Audited
31-May-12 28-Feb-11
Earnings, dividend and net asset value per share Cents Cents
Headline earnings per share 64,8 37,3
Declared and paid dividend per share
- Interim 26,0 8,0
Weighted average number of ordinary shares in
issue ('000s) 27 382 27 382
Headline earnings are reconciled to earnings per
the statement of comprehensive income as follows: R’000 R’000
Profit / (loss) attributable to equity
shareholders of the Company 13 393 (15 569)
Goodwill impairments 557 25 213
Impairment of intangible assets - 977
Loss/(profit) on disposal of property, plant and
equipment 4 (1)
Profit on disposal of intangible asset by
associate (333) -
Loss/(profits) on disposal of investments 4 112 (232)
Profit on disposal of non-current asset held for
sale - (164)
Headline earnings for the financial year 17 733 10 224
Unaudited Unaudited
31-May-12 28-Feb-11
Net asset value per ordinary share Cents Cents
Net assets 421,4 403,9
Net tangible assets 158,3 148,5
Other significant matters
As per the SENS announcement on 22 November 2011, the following changes to
the board were made with effect from Wednesday 16 November 2011:
Resignations: Mr PN de Waal, Mr M Edas and Miss S Totaram resigned as non-
executive directors.
Appointments: Mr RDEB Sassoon and Mr TD Soondarjee were appointed as non-
executive directors.
Contingent asset
Future revenue approximating R11 million, to be earned from incentive
applications submitted to regulatory authorities but still awaiting
approval for payment as at the reporting date, has not been recognised as
income in these financial statements in accordance with the Group's
accounting policy on revenue recognition (28 February 2011 R10 million).
Subsequent events
No material events have been identified subsequent to the reporting date
of the Group up to the date of this report, other than those disclosed in
these condensed financial statements and the commentary thereon.
Segment report
The Group has four reportable segments within which the Group’s operating
units (SBUs) are categorised.
The SBUs offer different services and are managed separately as they
require different technology and marketing strategies, and are reported
separately to the board of directors.
Investment incentives
Render consulting services aimed at enabling clients to obtain the maximum
benefits and refunds from Government and dti incentive programmes.
Global trade services
Offer import and export business solutions, including customs consulting,
rebate administration, financial market analysis and interest rate and
forex risk management.
Business development services
Provide consulting services and management tools to optimise business
systems and processes and technological solutions for third-party payment
transactions.
Audit and verification services
Conduct quality assurance, VAT and customs audits and verify BEE
compliance.
Global Business Audit and
Investment trade development verification
incentives services services services Total
Operating
segments R’000 R’000 R’000 R’000 R’000
31 May 2012 -
reviewed
Revenue -
internal 55 254 160 - 469
Revenue - 27 422 60 851 4 231 11 807 104 311
external
Profit before
tax 6 998 15 689 709 1 847 25 243
28 February 2011 – audited
Revenue -
internal 192 - 1 113 - 1 305
Revenue -
external 28 357 41 270 5 320 8 926 83 873
Profit/(loss)
before tax 8 851 14 569 (3 620) (2 604) 17 196
Reviewed Audited
31-May-12 28-Feb-11
Segmental profit reconciliation R’000 R’000
Profit before tax for reportable segments 25 243 17 196
Impairment losses (1 126) (28 030)
Profits from unallocated segments 4 623 5 574
Elimination of intersegment and corporate profits (6 325) (8 047)
Group profit/(loss) before tax as per statement
of comprehensive income 22 415 (13 307)
Transactions with individual clients did not amount to 10% or more of the
Group's total revenue.
27 July 2012
Port Elizabeth
Designated Advisor: PSG Capital (Pty) Ltd
Date: 27/07/2012 04:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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