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Interim financial results for the six months ended 30 November 2013 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 2013 AND RENEWAL OF CAUTIONARY ANNOUNCEMENT
Highlights
• Revenue Up by 15% to R 545 million
• Headline earnings Up by 15% to R 29 million
• EBITDA Up by 26% to R 84 million
• NTAV per share Up by 96% to 11.32 cents
Condensed consolidated statements of comprehensive income
Reviewed Reviewed six Audited year
six months months to 30 ended 31 May
to 30 Nov Nov 2012 2013
2013 R’000 R’000
R’000
Revenue 545 428 473 412 956 164
Cost of sales (265 416) (240 461) (427 351)
Gross profit 280 012 232 951 528 813
EBIITDA (earnings before, interest,
impairment, tax, depreciation,
amortisation and sale of business) 84 190 66 754 141 520
Depreciation (8 634) (5 844) (14 569)
Amortisation of intangible assets (297) (6 841) (39 265)
Impairment of goodwill - (33 465) (33 465)
Net finance cost (6 235) (1 782) (8 050)
Profit on sale of business - 6 985 6 985
Profit before taxation 69 024 25 807 53 156
Taxation (23 642) (20 236) (29 579)
Profit for the period 45 382 5 571 23 577
Other comprehensive income for the
period, net of tax (826) 386 2 087
Total comprehensive income for the
period 44 556 5 957 25 664
Profit/(loss) attributable to:
Owners of the parent 29 499 (3 069) 11 643
Non-controlling interest 15 883 8 640 11 934
45 382 5 571 23 577
Total comprehensive income/(loss)
attributable to:
Owners of the parent 28 673 (2 683) 13 730
Non-controlling interest 15 883 8 640 11 934
44 556 5 957 25 664
Earnings/(Loss) per share (cents) 6.48 (0.62) 2.38
Diluted earnings/ (loss) per share
(cents) 6.20 (0.49) 2.38
Notes to the statement of
comprehensive income
Headline earnings for the period
attributable to owners of the parent 29 499 25 628 40 032
Headline earnings per share 6.48 5.20 8.20
Diluted headline earnings per share 6.20 4.08 8.20
Number of shares (‘000)
- Weighted average number of shares 455 469 493 141 488 294
- Diluted weighted average number
of shares 476 074 628 141 488 294
Reconciliation of headline earnings
Earnings/ (loss) for the period
attributable to owners of the parent 29 499 (3 069) 11 643
Goodwill impairment - 33 465 33 465
Profit on disposal of property, plant
and equipment - (32) (459)
Profit on disposal of subsidiary - (6 985) (6 985)
Tax effect of re-measurements - 2 249 2 368
Headline earnings for the period
attributable to owners of the parent 29 499 25 628 40 032
Condensed consolidated statements of financial position
Reviewed Reviewed six Audited year
six months months at 30 ended 31 May
at 30 Nov Nov 2012 2013
2013 R’000 R’000
R’000
ASSETS
Non-current assets 362 092 309 338 353 300
Investment property 4 394 - -
Property, plant and equipment 149 624 80 721 143 735
Goodwill 150 680 144 602 150 680
Intangible assets 1 483 34 204 1 780
Deferred taxation 55 911 49 811 57 105
Current assets 310 346 349 135 328 945
Inventories 17 975 76 162 30 455
Trade and other receivables 171 939 163 660 194 488
Other financial assets 4 763 15 935 5 534
Taxation receivable 15 965 12 661 15 095
Operating lease assets 16 226 242
Cash and cash equivalents 99 688 80 491 83 131
Total assets 672 438 658 473 682 245
EQUITY AND LIABILITIES
Capital and reserves 251 791 214 431 229 582
Share capital 284 960 291 007 287 435
Foreign currency translation reserve (10 893) (11 768) (10 067)
Share-based payment reserve 3 843 2 485 3 082
Accumulated loss (26 119) (67 293) (50 868)
Non-controlling interest 45 819 42 101 36 979
Total equity 297 610 256 532 266 561
Non-current liabilities 79 231 84 251 87 141
Vendor liabilities 4 910 14 114 4 717
Other financial liabilities 53 315 51 025 56 991
Finance lease obligation 15 715 5 711 19 590
Deferred taxation 5 291 13 401 5 843
Current liabilities 295 597 317 690 328 543
Vendor liabilities 19 657 9 028 17 714
Other financial liabilities 28 334 27 479 27 892
Finance lease obligations 8 737 2 361 8 735
Trade and other payables 203 999 266 897 244 079
Provisions 180 250 180
Operating lease liability 751 1 046 1 079
Current tax payable 33 939 10 629 28 864
Total equity and liabilities 672 438 658 473 682 245
Total shares in issue ('000) 880 000 617 850 602 511
Net asset value per share (cents) 28.61 34.71 38.10
Net tangible asset value per share
(cents) 11.32 5.77 12.80
Condensed consolidated statements of cash flows
Reviewed Reviewed six Audited year
six months to months to 30 ended 31 May
30 Nov 2013 Nov 2012 2013
R’000 R’000 R’000
Net cash flows from operating 56 079 37 560 99 339
activities
Net cash flows from investing
activities (18 146) (37 329) (56 455)
Net cash flows from financing
activities (21 376) (23 472) (63 485)
Net(decrease)/increase in cash and
cash equivalents 16 557 (23 241) (20 601)
Cash and cash equivalents at
beginning of period 83 131 103 732 103 732
Cash and cash equivalents at end
of period 99 688 80 491 83 131
Condensed consolidated statements of changes in equity
Reviewed Reviewed six Audited year
six months to months to 30 ended 31 May
30 Nov 2013 Nov 2012 2013
R’000 R’000 R’000
Equity – opening balance 266 561 267 399 267 399
Total comprehensive income for the
period 44 556 5 957 25 664
Share-based payment expense 761 596 1 193
Share repurchase (2 475) (5 401) (8 973)
Shares issued 35 547 - -
Shares utilised for BEECO2 (35 547) - -
Non-controlling interest acquired - - 6 227
Non-controlling interest start-up
companies - - 603
Dividend paid (4 750) (6 792) (5 079)
Dividends paid to non controlling
interest (7 043) (5 227) (20 473)
Equity – closing balance 297 610 256 532 266 561
Commentary
Basis of preparation
The reviewed condensed consolidated interim financial statements have been
prepared in accordance with and containing the information required by IAS
34: Interim Financial Reporting as well as the SAICA Financial Reporting
Guides as issued by the Accounting Practices Committee, the JSE Limited
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, and are
presented in South African Rand, which is the group's functional and
presentation currency.
The significant accounting policies and methods of computation are consistent
in all material respects with those applied in the previous year, except as
disclosed in the changes in accounting policies note.
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.
Changes in accounting policies
The group adopted the new, revised or amended accounting pronouncements as
issued by the IASB, which were effective and applicable to the Group from 1
June 2013, none of which had any material impact on the Group's financial
results for the year.
IFRS 10 Consolidated Financial Statements
The objective of IFRS 10 is to establish principles for the presentation and
preparation of consolidated financial statements when an entity controls one
or more other entities.
The group has revised its accounting policies on the consolidation of
subsidiaries and concluded that the adoption of IFRS 10 did not result in any
material change in the consolidation of the group.
IFRS 13: Fair value measurement
IFRS 13 aims to improve consistency and reduce complexity by providing a
precise definition of fair value and a single source of fair value
measurement and disclosure requirements for use across IFRS. IFRS 13 was
adopted and applied prospectively and it was assessed that the adoption did
not result in any material impact on the financial results of the group.
Independent review by the auditors
The condensed consolidated interim financial statements have been reviewed by
our auditors Mazars (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 2013 ('the period') reflecting
good performance.
The reviewed condensed consolidated interim financial statements for the
period were authorised for issue by the directors on 25 February 2014.
Group profile
Morvest is a black empowered diversified investment holding group with an
international footprint spanning Africa (South Africa, Mozambique, and
Nigeria), UAE and the USA. The group’s operations are aligned into three key
segments: Business Support Services (including Professional Services and
Outsourcing Solutions), ICT Solutions and Retail and Consumer Segment which
is in line with the group’s diversification strategy.
Operational overview
The South African & Nigerian markets continue to be challenging for the
period under review.
Good performance was achieved across the group with revenue up by 15% to R545
million from the prior year interim period. Business Support Services
contributed 49% and the ICT Solutions Division contributed the balance.
Approximately 93% of the revenue was generated in South Africa and balance
from Africa.
EBITDA amounted to R84,1 million (2012: R66,7 million) reflecting an increase
in margin to 15,4% (2012: 14,1%)as a result in the growth in revenue.
The group posted headline earnings of R29,5 million (2012: R25,6 million)
translating into headline earnings per share of 6.48 cents (2012: 5,20
cents), up by 25%.
The full effect on diluted earnings and headline earnings per share which if
based on 880 million actual shares in issue is 3.35 cents per share should
the share based payments transactions be fully accounted for today.
The group cash on hand is up to R99,7 million (2012: R80,5 million) after the
outflow from investing activities in PPE of R14.5 million.
Dividend declaration
Morvest paid a final gross cash dividend of 1 cent per share for the previous
year ended 31 May 2013 on 28 October 2013.
No interim dividend has been declared.
BEECo 2 Group Key Executives Scheme
As announced on 22 August and 15 October 2013 the BEECO 2 Group Key Executive
Scheme was approved by shareholders. The names and relevant details of the
executives who are also considered to be related parties that are
beneficiaries of the scheme have been disclosed in the circular issued on the
22nd of August 2013.
In terms of the transaction BEECo 2 has subscribed for 290 million Morvest
shares, by means of the issue 222 171 121 new Morvest shares and the
acquisition of 67 828 879 treasury shares, both issued at 16c per share.
Morvest facilitated the transaction by providing funding of 90% of the total
value of the shares to BEECo 2 by Morvest subscribing to cumulative
redeemable preference shares in BEECo 2. The remaining 10% of the total share
value was a cash settlement by the Key executives.
The repayment of the preference shares shall be funded by BEECo out of
dividends and other distributions received on the Morvest share.
The redemption date of the preference shares shall be on the 5th anniversary
of the grant date.
The fair value of the equity settled share-based payment expense is
calculated at grant date and expensed over the vesting period of the scheme.
The take-up of shares in the group by key executives in terms of the scheme
will boost direct black shareholding beyond 50% to enable Morvest to retain
existing public and private sector contracts, secure upcoming contract
renewals as well as bring on stream new business, all while aligning
management’s interests with shareholders.
New share issue
During the period a total of 222 million shares to the value of R 35.5
million were issued for the implementation of the BEECo 2 transaction.
Share repurchase
The company repurchased 12.5 million shares during the interim period to the
value of R 2.5 million on the open market in terms of the share repurchase
programme.
As at 30 November 2013 the total number shares in issue is 880 million.
Material changes to plant property and equipment
The group completed the construction of the new head office building and
costs for the period totalled R8.4 million (2012: R19.4 million). The new
building was ready for use on 29 July 2013.
Segmental reporting
The Business Support Services division contributed 49% (2012:63%) of group
turnover with Technology (ICT) contributing the balance of 51% (2012: 37%).
November External Internal Total Profit/ Total Total
2013 segment segment segment (loss) for assets liabilities
turnover turnover turnover the year
R’000 R’000 R’000 R’000 R’000 R’000
Business 267 202 30 475 297 677 22 882 535 735 200 600
Support
Services
ICT 278 226 28 784 307 010 25 756 390 056 314 294
Solutions
Corporate - 56 782 56 782 9 953 888 836 628 671
Elimination - (116 041) (116 041) (13 209) (1 142 189) (768 737)
Total 545 428 - 545 428 45 382 672 438 374 828
November External Internal Total Profit/ Total assets Total
2012 segment segment segment (loss) for liabilities
turnover turnover turnover the year
R’000 R’000 R’000 R’000 R’000 R’000
Business 298 282 23 239 321 521 13 473 560 947 237 111
Support
Services
ICT 175 130 25 447 200 577 11 481 235 568 188 424
Solutions
Corporate - 64 677 64 677 24 843 729 869 537 906
Elimination - (113 363) (113 363) (44 226) (867 911) (561 500)
Total 473 412 - 473 412 5 571 658 473 401 941
The Retail and Consumer 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 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.
Contingent liabilities
There are no new matters since 31 May 2013 that has come to the attention of
the group.
Financial Instruments
The carrying amount of all financial instruments measured at amortised cost
closely approximates the fair value.
Subsequent events
The Board of directors are not aware of any material events that have taken
place since the reporting date.
Outlook
Morvest is committed to continual growth and evolution to become a leading
global diversified investment holding group.
Telco’s continues to exert margin squeeze as a result of pricing pressure,
and our cost containment whilst retaining quality and services is a key
priority for the year ahead.
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 difficult
conditions locally.
Renewal of cautionary announcement
Shareholders are referred to the cautionary announcements, the last of which
was dated 27 January 2014, and are advised that the discussions referred to
therein are still in progress and which, if successful, could have an impact
on the Company's share price.
In the circumstances, shareholders are advised to continue to exercise
caution when trading in their 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 in these
difficult times.
By order of the board
Mohammed Varachia Suren Singh
CEO CFO
25 February 2014
Directors:
Dr PS Molefe (Chairman)*#, M Varachia (CEO), S Singh (CFO), M Papiyana (Group
HR Director), A Evan (Executive Director), Prof. B Marx *#, NY Mhinga*#,A
Mohammadali-Haji*#
*Non-executive # Independent
Registered office:
188 14th Road, Noordwyk, Midrand, 1685
(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
188 14th Road, Noordwyk, Midrand, 1685
(PO Box 4307, Halfway House, Midrand, 1685)
26 February 2014
Johannesburg
Sponsor:
Sasfin Capital (a division of Sasfin Bank Limited)
Auditors:
Mazars (Gauteng) Inc.
Date: 26/02/2014 12:50:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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