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Reviewed Interim Results and renewal of cautionary announcement
Morvest 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”)
REVIEWED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE
SIX MONTHS ENDED 30 NOVEMBER 2012 AND RENEWAL OF CAUTIONARY
ANNOUNCEMENT
Highlights
• Revenue R 473 million Up 6%
• Headline earnings per share 5.2 cents Up 6.8%
• Cash reserves of R 80 million
• NTAV per share 5.77 cents Up 55.5%
Condensed consolidated statements of comprehensive income
Reviewed Reviewed Audited
six months six months year ended
to 30 Nov to 30 Nov 31 May
2012 2011 2012
R'000 R'000 R'000
Revenue 473 412 445 774 868 576
Cost of sales (240 461) (221 181) (410 937)
Gross profit 232 951 224 593 457 639
EBITDA 66 754 73 430 112 082
Depreciation (5 844) (6 636) (15 280)
Amortisation of intangible
assets (6 841) (3 413) (8 227)
Impairment of goodwill (33 465) - (20 163)
Profit on sale of subsidiary 6 985 - -
Impairment of investments in - - (6750)
associates
Net finance costs (1782) (5801) (12 912)
Loss from associate - (1 052) (2 406)
Profit before taxation 25 807 56 528 46 344
Income tax expense (20 236) (20 061) (23 374)
Profit for the period 5 571 36 467 22 970
Other comprehensive
income for the period, net of 386 2 553 760
tax
Total comprehensive income for
the period 5 957 39 020 23 730
(Loss)/profit attributable to:
Owners of the parent (3 069) 25 481 12 194
Non-controlling interest 8 640 10 986 10 776
5 571 36 467 22 970
Total comprehensive
(loss)/income attributable to:
Owners of the parent (2 683) 28 034 12 954
Non-controlling interest 8 640 10 986 10 776
5 957 39 020 23 730
(Loss)/earnings per share
(cents) (0.62) 4.87 2.33
Diluted (loss)/earnings per
share (cents) (0.49) 3.87 1.85
Notes to the statement of
comprehensive income:
Headline earnings for the
period attributable to owners
of the parent 25 628 25 481 35 596
Headline earnings per share 5.20 4.87 6.81
Diluted headline earnings per
share 4.08 3.87 5.41
Number of shares ('000')
- Weighted average number of
shares 493 141 523 264 522 617
- Diluted weighted
average number 628 141 658 264 657 617
of shares
Reconciliation of headline
earnings calculation:
(Loss)/earnings for the period
attributable to owners of the
parent (3 069) 25 481 12 194
Goodwill impairment 33 465 - 20 163
Profit on disposal of property,
plant and equipment (32) - (188)
Impairment of investments in - - 3 374
associates
Profit on disposal of (6 985) - -
subsidiary
Tax effect of re-measurements 2 249 - 53
Headline earnings for the
period attributable to owners
of the parent 25 628 25 481 35 596
Condensed consolidated statements of financial position
Reviewed Reviewed Audited
six months six months year ended
at 30 Nov at 30 Nov 31 May
2012 2011 2012
R'000 R'000 R'000
ASSETS
Non-current assets 309 338 312 175 315 181
Property, plant and equipment 80 721 48 800 44 254
Goodwill 144 602 214 001 178 067
Intangible assets 34 204 6 151 41 045
Investment in associate company - 8 105 -
Deferred taxation 49 811 35 118 51 815
Current assets 349 135 321 561 327 677
Inventories 76 162 38 199 65 049
Trade and other receivables 163 660 172 849 146 311
Financial assets 15 935 - 836
Taxation receivable 12 661 9 933 11 523
Operating lease assets 226 259 226
Cash resources 80 491 100 321 103 732
Total assets 658 473 633 736 642 858
EQUITY AND LIABILITIES
Capital and reserves 214 431 244 557 228 711
Share capital 291 007 297 751 296 408
Reserves (9 283) (9 069) (10 265)
Retained loss (67 293) (44 125) (57 432)
Non-controlling interest 42 101 32 066 38 688
Total equity 256 532 276 623 267 399
Non-current liabilities 84 251 113 339 100 679
Vendor liabilities 14 114 22 169 14 114
Other financial liabilities 51 025 79 975 65 485
(interest-bearing debt)
Finance lease obligation 5 711 8 185 5 744
Deferred taxation 13 401 3 010 15 336
Current liabilities 317 690 243 774 274 780
Vendor liabilities 9 028 12 085 8 056
Other financial liabilities 27 479 13 500 16 509
(interest-bearing debt)
Finance lease obligations 2 361 2 962 3 774
Trade and other payables 266 897 197 148 232 166
Provisions 250 2 945 250
Operating lease liability 1 046 1 031 898
Current tax payable 10 629 14 103 13 127
Total equity and liabilities 658 473 633 736 642 858
Total shares in issue ('000') 679 159 679 159 679 159
Total shares in issue after
treasury shares ('000') 617 850 658 264 651 370
Net asset value per share
(cents) 34.71 37.15 35.11
Net tangible asset value per
share (cents) 5.77 3.71 1.47
Condensed consolidated statements of cash flows
Reviewed Reviewed Audited
six months six months year ended
to 30 Nov to 30 Nov 31 May
2012 2011 2012
R'000 R'000 R'000
Net cash flows from operating
activities 37 560 44 910 87 380
Net cash flows from investing
activities (37 329) (20 191) (20 844)
Net cash flows from financing
activities (23 472) (9 152) (47 558)
Net(decrease)/increase in cash
and cash equivalents (23 241) 15 567 18 978
Cash and cash equivalents at
beginning of period 103 732 84 754 84 754
Cash and cash equivalents at
end of period 80 491 100 321 103 732
Condensed consolidated statements of changes in equity
Reviewed Reviewed Audited
six months six months year ended
to 30 Nov to 30 Nov 31 May
2012 2011 2012
R'000 R'000 R'000
Capital and reserves – opening
balance 267 399 243 132 258 896
Share repurchase (5401) (862) (2205)
Share-based payment expense 596 596 1193
Total comprehensive income for
the period 5 957 39 020 23 730
Dividend paid (6 792) (5 263) (5 284)
Dividends paid to non (5 227) - (8 931)
controlling interest
Capital and reserves – closing
balance 256 532 276 623 267 399
Commentary
Basis of preparation
The reviewed condensed consolidated interim financial statements have been
prepared in accordance and comply with International Financial Reporting
Standards (IFRS), the SAICA Financial Reporting Guides as issued by the
Accounting Practices Committee, the requirements of IAS 34: Interim Financial
Reporting, the JSE Listings Requirements and the Companies Act, No. 71 of
South Africa, 2008 as amended. They have been prepared on the historical cost
basis, except for certain financial instruments which are measured at fair
value or at amortised cost, and are presented in South African Rand, which is
the Group's functional and presentation currency.
The same accounting policies, presentations and methods of computation are
followed in these reviewed condensed consolidated interim financial
statements as were applied in the preparation of the Group's audited annual
financial statements for the previous year ended 31 May 2012.
The reviewed condensed consolidated interim financial statements have been
prepared under the supervision of Suren Singh (MBA, MITM, CIS and ABP) in his
capacity as Chief Financial Officer.
Independent review by the auditors
The condensed consolidated interim financial statements have been reviewed by
our auditors PKF (Gauteng) Inc., who have performed the review in accordance
with the International Standards on Review Engagements 2410. A copy of the
unqualified review report is available for inspection at the registered
office of the Company.
Introduction
The directors of Morvest present the reviewed condensed consolidated interim
results for the six months ended 30 November 2012 ('the period') reflecting
satisfactory performance.
The reviewed condensed consolidated interim financial statements for the
period were authorised for issue by the directors on 14 February 2013.
Group profile
Morvest is a black empowered holding group with an international footprint
spanning Africa (South Africa, Mozambique and Nigeria), India, United Arab
Emirates and the United States of America. The Group's operations are aligned
into three key divisions: Business Support Services (including Professional
Services and Outsourcing Solutions), ICT Solutions and the recently added
Retail and Consumer Services.
The Retail and Consumer Services division was added in line with the Group's
diversification strategy.
Operational overview
The South African & Nigerian markets continue to be challenging for the
period under review.
Satisfactory performance was achieved across the group with revenue up by
6,2% to R473,4 million from the prior year interim. Business Support Services
contributed 68% and the ICT Solutions division contributed the balance.
Approximately 95% of the revenue was generated in South Africa and balance
from Africa.
The Group has traditionally operated in the Business to Business market. The
new additions to the Morvest portfolio during the current financial year
(Retail and Consumer Services division) allows the Group access to the
Business to Consumer market and are expected to start contributing to revenue
in the second half of the financial year.
EBITDA amounted to R66,7 million (2011: R73,4 million) reflecting a decrease
margin to 14,1% (2011: 16,5%) resulting from continued pricing pressure from
our existing customer base as well as competition from the aggressive
emerging markets including China and India.
The Group posted headline earnings of R25,6 million (2011: R25,5 million)
translating into headline earnings per share of 5,20 cents (2011: 4,87
cents), up by 6,8%. Cash on hand is down to R80,5 million (2011: R103,7
million) after the outflow from investing activities in property, plant and
equipment of R42,5 million.
Dividend declaration
Morvest paid a final gross cash dividend of 1 cent per share for the previous
year ended 31 May 2012 on 17 September 2012. No interim dividend has been
declared.
Changes to the board of directors
On 15 June 2012 Mrs Nishani Singh resigned as an executive director of the
Company.
Share repurchase
The company repurchased 33 519 063 shares during the interim period to the
value of R5 400 721 on the open market in terms of the share repurchase
programme. Morvest intends to continue repurchasing shares in the current
year subject to Companies Act requirements and adding value to shareholders.
Material changes to plant property and equipment
During the previous financial period, the Group commenced construction of a
new Head Office building. Costs incurred relating to the building totalled
R19 431 735 for the interim period.
An additional capital investment of R23 095 275 relating to plant, property
and machinery was incurred during the interim period.
Goodwill
Goodwill is reviewed annually for impairment, or more frequently when there
are indicators that impairment may have occurred, by comparing the carrying
value of its recoverable amount. Impairment losses were included in other
operating expenses in the statement of comprehensive income.
Goodwill of R 18 672 000 relating to SAB & T Ubuntu Holdings (Proprietary)
Limited was fully impaired as a result of the sale of SAB and T Business
Innovations Group (Proprietary) Limited which occurred during the interim
period. SAB and T Business Innovations Group (Proprietary) Limited is a 100%
owned subsidiary of SAB & T Ubuntu Holdings (Proprietary) Limited.
The carrying amount of the following cash generating units were determined to
be higher than their recoverable amounts, based on value in use, and
impairment losses of R14 793 000 resulted reflecting a write-down of the
following cash generating units:
R'000
Intergraph Systems Southern Africa (Proprietary) Limited 9 680
Morvest Mithratech (Proprietary) Limited 5 113
14 793
The impairment losses disclosed above affect the following segments:
R'000
Business Support Services 23 785
ICT Solutions 9 680
33 465
Disposals of business
On 1 November 2012, the Group disposed of the shares and claims in SAB & T
Business Innovation Group (Proprietary) Limited (BIG), which formed part of
the Group's Business Support Services reportable segment, for R20 million.
In terms of the agreement the sold shares and claims exclude the following:
- The Kha Ri Gude Mass Literacy Project (KRG Project); and
- The outsourcing contract between the Company and the Department of
Agriculture, Forestry and Fisheries (DAFF Contract).
BIG's core business is providing internal audit and certain consulting
services to the public and private sector. Based on the groups long term
strategy, management has proceeded with the sale of the Internal Audit and
part of the Consulting division, whilst retaining the strategic outsourcing
and consulting divisions which continue to present growth opportunities.
R4.9 million was received in cash during the interim period while the balance
is to be received before the end of the financial year. This balance has been
disclosed under financial assets in the statement of financial position. The
profit on sale is disclosed as profit on sale of subsidiary in the statement
of comprehensive income.
Segmental reporting
The Business Support Services division contributed 63% of group turnover with
Technology (ICT) contributing the balance of 37%.
Business Support Technology
Services
Nov 12 Nov 11 Nov 12 Nov 11
R'000 R'000 R'000 R'000
External segment 298 282 275 866 175 130 169 908
turnover
Internal segment 23 239 3 272 25 447 25 284
turnover
Total segment
turnover
321 521 279 138 200 577 195 192
Profit for the 13 473 30 567 11 481 24 707
period
Consolidated 560 947 525 212 235 568 221 623
total assets
Consolidated 237 111 247 887 188 424 136 860
total
liabilities
Corporate Eliminations
Nov 12 Nov 11 Nov 12 Nov 11
R'000 R'000 R'000 R'000
Internal segment 64 677 82 185 (113 363) (110 741)
turnover
Total segment 64 677 82 185 (113 363) (110 741)
turnover
Profit for the 24 843 4 337 (44 226) (23 144)
period
Consolidated 729 869 543 928 (867 911) (657 027)
total assets
Consolidated 537 906 486 113 (561 500) (513 747)
total liabilities
Totals
Nov 12 Nov 11
Total segment 473 412 445 774
turnover
Profit for the
period 5 571 36 467
Consolidated 658 473 633 736
total assets
Consolidated
total liabilities 401 941 357 113
The Retail and Consumer Services segment has not been included above as it is
not a reportable segment in terms of IFRS 8.
Related Parties
During the year, certain subsidiaries, in the ordinary course of business
entered into various loans and transactions with related parties under terms
that are no less favourable than those arranged with third parties.
Transactions between the company and its subsidiaries, which are related
parties of the company, have been eliminated and consolidated.
Events after the reporting date
The Board of directors are not aware of any material events that have take
place since the reporting date, which would affect the results of the Group.
Outlook
Looking ahead the Group foresees a challenging 12 to 18 months period ahead
due to difficult market conditions and continued pricing pressure from
emerging markets. The further enhancement of BEE equity ownership remains a
serious focus and challenge for the Group in order to maintain and renew some
of its major contracts. Further expansion into Africa and internationally
remains a key strategic objective for the next year as part of the Group's
diversification strategy.
Renewal of cautionary announcement
Morvest shareholders are referred to the cautionary announcements, the last
of which was dated 6 February 2013, and are advised that the discussions
referred to therein are ongoing and, if successfully concluded, may have a
material effect on the share price of Morvest.
Accordingly, shareholders are advised to continue to exercise caution when
dealing in Morvest shares until a further announcement is made.
Appreciation
We thank all directors, managers and staff for their tenacity and drive which
contributed to the Group's performance in a tough economic environment.
We further extend our appreciation to all our shareholders, business
associates and loyal customers for their unwavering support.
By order of the board
Mohammed Varachia Suren Singh
CEO CFO
20 February 2013
Directors:
Dr PS Molefe (Chairman)*^, M Varachia (CEO), S Singh (CFO), M Papiyana, A
Evan, Prof. B Marx ^*, NY Mhinga*^,A Mohammadali-Haji*^
*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)
Auditors:
PKF (Gauteng) Inc.
Date: 21/02/2013 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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