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Reviewed Results for the year ended 31 August 2012
MUVONI TECHNOLOGY GROUP LIMITED
(Formerly Ideco Group Limited)
(Incorporated in the Republic of South Africa)
(Registration number: 2001/023463/06)
Share code: MTG
ISIN code: ZAE000167268
(Muvoni or the Company)
Reviewed condensed consolidated financial results
for the year ended 31 August 2012
www.muvoni.com
Condensed consolidated statement of financial position
Restated Restated
Reviewed Audited Audited
31 August 31 August 31 August
R000 2012 2011 2010
Assets
Non-current assets 70 112 75 806 84 049
Property, plant and equipment 11 846 9 809 10 771
Investment in associate 533
Intangible assets 49 208 54 752 62 924
Deferred tax 9 058 11 245 9 821
Current assets 51 651 27 368 46 690
Inventories 1 334 2 163 13 498
Trade and other receivables 21 344 22 146 28 211
Taxation receivable 96 513
Other financial assets 17 956
Cash and cash equivalents 10 921 3 059 4 468
Assets of disposal group 16 932
Total assets 121 763 120 106 130 739
Equity and liabilities
Equity 24 377 18 682 21 034
Share capital 1 1 1
Share premium 21 286 21 286 21 286
Retained income/(accumulated
loss) 3 090 (2 605) (253)
Liabilities
Non-current liabilities 57 256 52 285 48 624
Long-term borrowings 51 421 46 132 41 736
Deferred tax 5 835 6 153 6 888
Current liabilities 40 130 45 647 61 081
Current tax payable 30 568 316
Trade and other payables 12 753 10 188 26 515
Current portion of non-
current liabilities 328 298 266
Bank overdraft 7 724 6 928
Provisions 1 656 1 506 1 693
Other financial liability 25 363 25 363 25 363
Liabilities associated directly
with assets of disposal group 3 492
Total liabilities 97 386 101 424 109 705
Total equity and liabilities 121 763 120 106 130 739
Net asset value per share
(cents) 12,05 9,24 10,40
Net tangible asset value per
share (cents) (13,87) (20,35) (22,17)
Condensed consolidated statement of comprehensive income
Restated
Reviewed Audited
year ended year ended
31 August 31 August
R000 2012 2011
Continuing operations
Revenue 106 049 99 689
Cost of sales (30 738) (35 933)
Gross profit 75 311 63 756
Other income 2 801 1 067
Operating expenses (58 429) (51 246)
Earnings before interest, tax,
depreciation and amortisation 19 683 13 577
Depreciation (2 347) (1 999)
Amortisation (5 962) (5 354)
Impairment of intangible assets (348)
Operating profit 11 026 6 224
Investment revenue 2 563 168
Finance costs (8 564) (8 018)
Profit on sale of non-current assets 272
Profit on sale of discontinued
operation 4 590
Profit/(loss) before tax 9 887 (1 626)
Taxation expense (5 916) (2 069)
Profit/(loss) for the period from
continuing operations 3 971 (3 695)
Profit for the period from
discontinued operations 1 724 1 343
Profit/(loss) for the period 5 695 (2 352)
Other comprehensive income
Total comprehensive profit/(loss)
attributable to ordinary shareholders 5 695 (2 352)
Profit/(loss) per share
Basic and diluted basic profit/(loss)
per share (cents) 2,82 (1,16)
Continuing operations 1,96 (1,83)
Discontinued operations 0,85 0,67
Condensed consolidated statement of cash flows
Restated
Reviewed Audited
year ended year ended
31 August 31 August
R000 2012 2011
Cash generated by operations 6 765 7 081
Investment income 2 563 168
Finance costs (8 564) (8 018)
Taxation paid (4 682) (3 771)
Net cash flow from operating activities (3 918) (4 540)
Net cash flow from investing activities
Acquisition of property, plant and equipment (4 391) (1 413)
Acquisition of intangible assets (766) (241)
Proceeds from disposal of plant and equipment 279
Proceeds on disposal of subsidiary 20 200
Cash transferred to disposal group (1 136) (529)
Cash obtained on acquisition 90
Net cash flow from investing activities 14 186 (2 093)
Net cash flows from financing activities
Repayment of long-term borrowings (293) (268)
Movement in preference shares 5 611 4 696
Net cash flows from financing activities 5 318 4 428
Total cash movement for the period 15 586 (2 205)
Cash at the beginning of the period (4 665) (2 460)
Total cash at end of period 10 921 (4 665)
Condensed consolidated statement of changes in equity
Restated Restated
Reviewed Audited Audited
year ended year ended year ended
31 August 31 August 31 August
R000 2012 2011 2010
Ordinary share capital
Balance at beginning of
period 1 1 1
Issue of shares
Balance at end of period 1 1 1
Share premuim
Balance at beginning of
period 21 286 21 286 21 286
Issue of shares
Balance at end of period 21 286 21 286 21 286
Retained income
Balance at beginning of
period (2 605) (253) 7 494
Total comprehensive profit/
(loss) for the period 5 695 (958) (6 886)
Balance at end of period as
previously reported 3 090 (1 211) 608
Correction of prior period
error (1 394) (861)
Adjusted balance at end of
period 3 090 (2 605) (253)
Total shareholders equity
at end of period 24 377 18 682 21 034
Reconciliation of headline profit/loss per share
Restated Restated
Reviewed Audited Audited
year ended year ended year ended
31 August 31 August 31 August
R000 2012 2011 2010
Calculation of headline
profit/(loss)
Total comprehensive profit/
(loss) attributable
to ordinary shareholders 5 695 (2 352) (7 747)
Adjusted for:
Profit on sale of
subsidiary (4 590)
Impairment of goodwill 460
Impairment of intangible
asset 348
(Profit)/loss on sale of
property, plant and equipment (272) 1 23
Tax effect on headline
earnings adjustments 621
Headline profit/(loss) 1 802 (1 891) (7 724)
Continuing operations 78 (3 235) (7 245)
Discontinued operations 1 724 1 344 (479)
Headline and diluted headline
profit/(loss) per
share (cents) 0,89 (0,94) (3,82)
Continuing operations 0,04 (1,60) (3,58)
Discontinued operations 0,85 0,66 (0,24)
Number of shares Issued
and weighted 202 222 222 202 222 222 202 222 222
Discontinued operations
Ideco Biometric Security Solutions (Pty) Ltd
Date of sale: 15 December 2011
Unaudited Audited
period ended year ended
15 December 31 August
R000 2011 2011
Results of discontinued operations
Revenue 12 439 39 176
Expenses (10 473) (37 796)
Profit from operating activities 1 966 1 380
Taxation expense (242) (37)
Profit from discontinued operations 1 724 1 343
Net cash flows attributable to the
discontinued operation
Net cash flows from/utilised in)
operating activities 981 (4 168)
Net cash flows (utilised in)/from
investing activities (215) 4 536
Net cash flows utilised in
financing activities (462)
Net increase in cash and cash
equivalents 304 368
Non-current assets held for sale
Property, plant and equipment 434 274
Intangible assets 3 058 3 058
Deferred tax asset 31 272
Inventories 4 136 3 461
Trade and other receivables 19 332 9 338
Cash and cash equivalents 833 529
Total assets 27 824 16 932
Liabilities associated directly
with non current assets held for sale
Trade and other payables 13 122 3 492
Total liabilities 13 122 3 492
Prior year adjustment
Previously Previously
Reviewed Restated reported Restated reported
31 August 31 August 31 August 31 August 31 August
R000 2012 2011 2011 2010 2010
Cumulative
redeemable
preference
shares
Included
under long
term
liabilities 49 912 44 300 42 045 39 424 38 743
Finance cost 8 564 8 018 6 624 8 564 7 883
Segmental analysis
Discontinued operations
Biometric
readers Adjustments
and and
solutions eliminations Total
R000
Reviewed 31 August 2012
Revenue from external 11 946 11 946
customers
Intersegment revenue 493 (493)
Total revenue 12 439 (493) 11 946
Depreciation and
amortisation (55) (55)
Operating profit/(loss) 2 632 238 2 870
Investment income
Finance costs (666) 85 (581)
Profit/(loss) before tax 1 966 323 2 289
Taxation
(expense)/credit (242) (242)
Total assets
Total liabilitiies
Restated audited 31 August 2011
Revenue from external
customers 39 176 39 176
Intersegment revenue
Total revenue 39 176 39 176
Depreciation and
amortisation (102) (102)
Operating profit/(loss) 1 380 4 604 5 984
Investment income
Finance costs
Profit/(loss) before tax 1 380 4 604 5 984
Taxation
(expense)/credit (37) (37)
Total assets 16 932 16 932
Total liabilitiies (15 715) 12 223 (3 492)
Continued operations
Biometric
readers Secure
and credentialing Biometric
solutions services projects
R000
Reviewed 31 August 2012
Revenue from external
customers 95 109 10 940
Intersegment revenue 17 864
Total revenue 112 973 10 940
Depreciation and
amortisation (5 098) (435)
Operating profit/(loss) (50) 19 859 (635)
Investment income 229
Finance costs (7 999)
Profit/(loss) before tax (50) 12 344 (635)
Taxation
(expense)/credit (138) (6 082) 177
Total assets 23 87 224 10 954
Total liabilitiies (95 186) (9 034)
Restated audited 31 August 2011
Revenue from external
customers 407 78 710 20 572
Intersegment revenue 9 300
Total revenue 407 88 010 20 572
Depreciation and
amortisation (3 089) (1 091)
Operating profit/(loss) 45 18 261 (3 487)
Investment income 168
Finance costs (7 148)
Profit/(loss) before tax 45 11 282 (3 487)
Taxation
(expense)/credit (13) (5 383) 974
Total assets 6 543 68 710 9 269
Total liabilitiies (469) (82 934) (6 429)
Continued operations
Adjustments
and
Corporate eliminations Total
R000
Reviewed 31 August 2012
Revenue from external
customers 106 049
Intersegment revenue (17 864)
Total revenue ( 17 864) 106 049
Depreciation and
amortisation (152) (2 624) (8 309)
Operating profit/(loss) (6 696) (1 453) 11 025
Investment income 2 334 2 563
Finance costs (565) (8 564)
Profit/(loss) before tax 2 621 (4 394) 9 886
Taxation
(expense)/credit (608) 735 (5 916)
Total assets 64 348 (40 786) 121 763
Total liabilitiies (47 108) 53 942 (97 386)
Restated audited 31 August 2011
Revenue from external
customers 99 689
Intersegment revenue (9 300)
Total revenue (9 300) 99 689
Depreciation and
amortisation (549) (2 624) (7 353)
Operating profit/(loss) (5 641) (2 954) 6 224
Investment income 168
Finance costs (870) (8 018)
Profit/(loss) before tax (6 512) (2 954) (1 626)
Taxation
(expense)/credit 1 619 734 (2 069)
Total assets 53 836 (35 184) 103 174
Total liabilitiies (44 934) 36 834 (97 932)
Commentary
Introduction
Set out above are the reviewed condensed consolidated financial
results of Muvoni in respect of the year ended 31 August 2012
with the comparative results for the year ended 31 August 2011.
Basis of preparation
The condensed consolidated financial statements have been
prepared in accordance with the framework concepts and the
recognition and measurement requirements of International
Financial Reporting Standards (IFRS), and in compliance
with the requirements of IAS 34: Interim Financial Reporting,
the South African Companies Act, AC 500 standards, as issued
by the Accounting Practices or its successor, and the
JSE Limited Listings Requirements.
The reviewed condensed consolidated financial results were
prepared under the supervision of the Financial Director,
HB Aucamp (CA)SA.
Significant accounting policies
The accounting policies adopted in the preparation of the
provisional financial information are consistent with those
used to prepare the financial statements for the year ended
31 August 2011.
The condensed consolidated financial statements have been
reviewed by BDO South Africa Incorporated and their unmodified
review report is available for inspection at the companys
registered office.
Financial overview
Earnings before interest, tax, depreciation and amortisation
(EBITDA) of continuing operations showed an improvement
of R5,8 million (42,4%) over the previous year. This
improvement can largely be ascribed to the increase in
EBITDA of AFISwitch (Pty) Ltd (AFISwitch), which together
with Managed Integrity Evaluation (Pty) Ltd (MIE), make
up the secure credentialing segment. The biometric project
segment reported a loss in EBITDA of R200 000 for the
year ended 31 August 2012, which represented an improvement
of R2,2 million if compared to the previous financial year.
Unallocated corporate expenses were 28,5% higher than that
of the previous year.
A total comprehensive profit attributable to ordinary
shareholders of R5,7 million was recorded for the year compared
to a total comprehensive loss of R2,4 million for the year ended
31 August 2011. The profit of R5,7 million includes a profit of
R3,9 million, which was realised on the sale of Ideco Biometric
Security Solutions (Pty) Ltd (IBSS), which had an effective
date of 15 December 2011. IBSS contributed R1,7 million to group
profit for the period during which it was still a wholly-owned
subsidiary of Muvoni.
Non-current assets decreased from R75,8 million at 31 August 2011
to R70,1 million at 31 August 2012, mainly as a result of
amortisation of intangible assets of R6 million.
Total current assets increased by R24,3 million as at 31 August 2012
compared to 31 August 2011, mainly as a result of the other
financial asset of R18 million and an increase in cash on hand of
R7,9 million.
Non-current liabilities increased by R5 million, due to the
provision for the dividend payable on the B preference shares
issued to the National Empowerment Fund, which is only payable on
1 September 2016.
Current liabilities decreased by R5,6 million as at 31 August 2012
compared to 31 August 2011, mainly due to a reduction of
R7,7 million in the bank overdraft and an increase of R3,3 million
in trade payables.
The groups net cash position increased by R15,6 million during
the year ended 31 August 2012. Cash utilised from operating
activities amounted to R2,9 million. Net cash flows from investing
activities contributed R13,1 million to group cash flow, of which
R18 million was due to the sale of IBSS and R4,9 million was used
to acquire property, plant and equipment and intangible assets.
Financing activities contributed R5,3 million to group cash flows,
which consisted of loan repayments of R293 000 and a contribution
of R5,6 million from the provision for the B preference share
dividend.
Details of the above cash flows are reflected in the above condensed
consolidated statement of cash flows.
Operations
Biometric readers and solutions
Muvoni has taken the strategic decision to sell IBSS, the major
contributor to revenue and profit for this segment, in order to
refocus its resources on providing transaction-based verification
services. This segment contributed R1,7 million to group profit
for the period 1 September 2011 to 15 December 2011, the
effective date of the transaction.
Secure credentialing services
This segment provides fingerprint-based criminal record checks
in terms of a long-term agreement with SAPS as well as background
screening services for employers on existing and prospective
employees. The activities of this segment are conducted in two
companies: AFISwitch-offering criminal record checks and
MIE offering background screening services.
MIEs revenue for the year ended 31 August 2012 was 8,7%
higher than the revenue for the year ended 31 August 2011,
while EBITDA decreased by 14%.The decrease in EBITDA can be
ascribed to lower margins in respect of the criminal record
checks performed by MIE.
The revenue of AFISwitch for the year ended 31 August 2012
increased by 63% compared to the year ended 31 August 2011, while
EBITDA was 105% higher than in the previous financial year. With
effect from 1 July 2011, the South African Police Services
(SAPS) terminated criminal record checks based on names
and identity numbers and now only performs criminal record
checks based on fingerprints. This had a huge positive effect
on the number of searches performed through the AFISwitch service,
and the year ended 31 August 2012 was the first full financial year
where the effect of this change in SAPS policy was reflected.
Biometric projects
Revenue generated by this segment decreased by 88% compared to the
revenue for the year ended 31 August 2011. The main reason for
this decrease is the fact that the previous year included the
initial purchase of Gautrain smartcards by commuters which was the
first full year where such revenue was included in the segments
results. The operating loss of R635 000 of this division was
R2,8 million lower than the previous year ended 31 August 2011.
Prospects
Secure credentialing services
The criminal record checking service, conducted by AFISwitch,will
show slower growth, due to the fact that the year ended 31 August
2012 was the first full year where the service was almost used to
its full potential, except in the case of the rendering of the
service to the Department of Transport for Professional Drivers
Permits has been completed, where about 75% of applicants are
using the AFISwitch service. The SAPS automated fingerprint
identification system (AFIS) is being used at full capacity
and therefore the group has acquired its own AFIS to ensure
that sufficient capacity will be available for future growth.
It is expected that MIE will continue to contribute significantly
to group profits, and although still small, MIE has expanded its
service into neighbouring Africa countries, which will provide
further opportunities for growth.
Biometric Projects
Currently, the segment has a few contracts as previously reported,
most notedly the Namibian drivers licence project and the Bombela
Operating Company contract for the supply of the Gautrain
smartcards, and is able to cover its own costs to a large extent.
The segment has received an additional order for the supply of
biometric readers to a financial institution for the identification
of its clients.
Going concern
The directors have considered the group cash flow projections and
budgets for the next two years and in light of contracts concluded
and an improvement in the business sectors where the group operates,
are satisfied that the group will continue to operate as a going
concern for the year ending 31 August 2013.
Discontinued operations
The shareholders approved the sale of IBSS at a general meeting
held on 15 December 2011. The purchaser of IBSS acquired all the
shares in and claims against IBSS from Muvoni in one indivisible
transaction for an amount of R20,2 million, payable in cash. The
purchase price is payable over a period of 19 months from
January 2012 to July 2013.
The sale of IBSS has been accounted for as a discontinued
operation in terms of IFRS 5 Non-current Assets Held for
Sale and Discontinued Operations. For details of the disposal
refer to the financial information on discontinued operations
above.
Prior year adjustment
In terms of the preference share agreement with the National
Empowerment Fund (the NEF), the NEF must earn an
internal rate of return (IRR) of 18% on their investment.
The payment of annual dividends was split into an A dividend,
calculated at 75% of the prime overdraft rate and a final B dividend
at the date of full redemption to give the NEF an IRR of 18% over
the term of the agreement taking into account all payments that have
been made. In previous years an IRR calculation was performed to
determine the annual provision for the B dividend payable at the
date of redemption. It was determined that it would be more correct
to prepare an amortisation table at an interest rate of 18% to
calculate the provision for the B dividend. By changing to this
method of calculating the B dividend, it resulted in finance cost
having to be restated and increased by R681 000 for the year ended
31 August 2010 and by R1,394 million for the year ended
31 August 2011.
Capital commitments
There is a capital commitment approved by the directors for the
purchase of the AFISwitch software from a related party for an
amount of R6,5 million. A circular containing details of the
transaction and a notice of a general meeting to be held on
11 January 2013 to approve the transaction had been mailed to
shareholders on 30 November 2012.
There is furthermore a capital commitment to spend R4 million
on Muvonis own AFIS to increase the capacity of the
AFISwitch service in respect of fingerprint criminal record
checks, subject to board approval.
Subsequent events
There are no material subsequent events to report on.
Related party transactions
Other than the purchase of the AFISwitch software referred to above,
there were no material related party transactions.
Debt default or breach of debt covenant
As reported with the announcement of Muvonis interim results
for the six months ended 28 February 2012, the company is
involved in a dispute with Morpho SA regarding the repayment
terms of the other financial liability of R25,4 million
reflected in Muvonis condensed consolidated statement of
financial position at 31 August 2012. This matter was initially
taken to the International Chamber of Commerce International
Court of Arbitration (ICC) for consideration, but at Morphos
request, the parties agreed during December 2011 to commence with
arbitration proceedings and to terminate the ICC proceedings. It
was agreed that all disputes will be determined by private
arbitration as set out in an arbitration agreement.
In terms of the arbitration agreement, the arbitration shall be heard
by a tribunal of three arbitrators. The arbitrators shall have the
powers and duties referred to in the Arbitration Act and the
arbitration shall be conducted in accordance with the Uniform Rules
of the High Court and South African law and the South African law of
evidence shall apply. The decision of the tribunal shall be final and
not be subject to an appeal.
The parties are currently in the final stages of the discovery of
documents phase. The arbitrators have requested the parties to submit
suitable dates for the arbitration hearing to be conducted during the
period from April 2013 to September 2013. Muvoni has also instituted
a counter-claim of approximately R32 million against Morpho for
Muvonis share of a joint biometric project completed during
2010. This claim will also be dealt with during the arbitration
hearing.
Pending the outcome of the arbitration, there is a contingent
liability of R2,2 million against Muvoni in respect of additional
interest.
Dividend
No dividend has been declared for the period.
Corporate governance
The directors and senior managers of the company endorse the Code of
Corporate Practices and Conduct as set out in the King III Report on
Corporate Governance.
Changes to the board
There were no changes to the Board during the period under review.
By order of the board
Vhonani Mufamadi HB Aucamp
Chief Executive Officer Chief Financial Officer
13 December 2012
Executive directors: V Mufamadi (CEO); HB Aucamp (CFO)
Non-executive directors: AX Sisulu-Dunstan; MF Kekana; JA Vorster
Registration number: 2001/023463/06
Registered address: 267 West Street, Centurion, Pretoria, 0157
Postal address: PO Box 7416, Centurion,0046
Company secretary: HB Aucamp
Telephone (011) 447 4895
Facsimile(011) 447 4918
Transfer secretaries: Computershare Investor Services (Pty) Ltd
Legal advisors: DLA Cliffe Dekker Hofmeyr Inc
Designated advisor: Sasfin Capital, a division of Sasfin Bank Limited
Date: 13/12/2012 11:55:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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