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Audited summary consolidated financial statements for the year ended 31 May 2014 and declaration of a cash dividend
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”)
AUDITED SUMMARY CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MAY
2014 AND DECLARATION OF A CASH DIVIDEND
Highlights
• Revenue up 15.1%
• EBIITDA up 11.3%
• Headline earnings up 16.4%
. Net tangible asset value per share up 13.5%
• Gross dividend of 1 cent per share
• Diluted headline earnings per share based on 880 million actual shares
in issue up 16.3% to 5.29 cents
Audited summary consolidated statement of comprehensive income
Audited Audited
Year ended Year ended
31-May-14 31-May-13
R'000 R'000
Revenue 1 100 757 956 164
Cost of sales (610 944) (427 351)
Gross profit 489 813 528 813
EBIITDA (earnings before interest, impairment, 157 525 141 520
tax, depreciation and amortisation)
Depreciation (16 299) (14 569)
Amortisation of intangible assets (1 484) (39 265)
Impairment of goodwill (12 325) (33 465)
Net finance costs (13 078) (8 050)
(Loss)/Profit on sale of business (1 703) 6 985
Profit before taxation 112 636 53 156
Taxation (40 563) (29 579)
Profit for the year 72 073 23 577
Other comprehensive income/(loss) for the (732) 2 087
year, net of tax
Total comprehensive income for the year 71 341 25 664
Profit attributable to:
Owners of the parent 35 563 11 643
Non-controlling interest 36 510 11 934
72 073 23 577
Total comprehensive income attributable to:
Owners of the parent 34 831 13 730
Non-controlling interest 36 510 11 934
71 341 25 664
Earnings per share (cents) 7.81 2.38
Diluted earnings per share (cents) 6.28 2.38
Notes to the statement of comprehensive income
Headline earnings for the year attributable to 46 576 40 032
ordinary shareholders:
Headline earnings per share 10.23 8.20
Diluted headline earnings per share 8.22 8.20
Number of shares („000)
- Weighted average number of shares 455 245 488 294
- Diluted weighted average number of shares 566 359 488 294
in issue and to be issued
Reconciliation of headline earnings
calculation:
Earnings for the year attributable to ordinary 35 563 11 643
shareholders
Goodwill impairment 12 325 33 465
Loss on disposal of subsidiary (1 108) (4 745)
Profit on disposal of property, plant and (204) (331)
equipment
Headline earnings for the year attributable to 46 576 40 032
ordinary shareholders
Audited summary consolidated statement of financial position
Audited Audited
Year ended Year ended
31-May-14 31-May-13
R'000 R'000
ASSETS
Non-current assets 320 261 353 300
Investment property 2 331 -
Property, plant and equipment 141 153 143 735
Goodwill 133 562 150 680
Intangible assets 296 1 780
Other financial assets 3 306 -
Deferred taxation 39 613 57 105
Current assets 323 634 328 945
Inventories 19 198 30 455
Trade and other receivables 148 668 194 488
Other financial assets 11 184 5 534
Taxation receivable 7 721 15 095
Operating lease assets 16 242
Cash and cash equivalents 136 847 83 131
Total assets 643 895 682 245
EQUITY AND LIABILITIES
Capital and reserves 261 709 229 582
Share capital 287 435 287 435
Foreign currency translation reserve (10 799) (10 067)
Accumulated loss (19 855) (50 868)
Share-based payment reserve 4 928 3 082
Non-controlling interest 52 121 36 979
Total equity 313 830 266 561
Non-current liabilities 94 114 87 141
Vendor liabilities - 4 717
Other financial liabilities 68 608 56 991
Finance lease obligations 18 562 19 590
Deferred taxation 6 944 5 843
Current liabilities 235 951 328 543
Vendor liabilities 14 430 17 714
Other financial liabilities 42 941 27 892
Finance lease obligations 4 387 8 735
Trade and other payables 153 519 244 079
Provisions 180 180
Operating lease liabilities - 1 079
Current tax payable 19 289 28 864
Bank overdraft 1 205 -
Total equity and liabilities 643 895 682 245
Total number of shares in issue ('000) 880 000 679 159
Net asset value per share (cents) 29.74 38.10
Net tangible asset value per share (cents) 14.53 12.80
Audited summary consolidated statement of cash flows
Audited Audited
Year ended Year ended
31-May-14 31-May-13
R'000 R'000
Net cash flows from operating activities 85 094 99 339
Net cash flows from investing activities (22 545) (56 455)
Net cash flows from financing activities (10 038) (63 485)
Net (decrease)/increase in cash and cash 52 511 (20 601)
equivalents
Cash and cash equivalents at beginning of year 83 131 103 732
Cash and cash equivalents at end of year 135 642 83 131
Audited summary consolidated statement of changes in equity
Audited Audited
Year ended Year ended
31-May-14 31-May-13
R'000 R'000
Equity – opening balance 266 561 267 399
Profit for year 35 563 11 643
Non-controlling interest 36 510 11 934
Foreign Currency Translation Reserve (732) 2 087
Total comprehensive income for the year 71 341 25 664
Share-based payment expense 1 846 1 193
Disposal of subsidiary – NCI portion (6 695) -
Share repurchase - (8 973)
Non-controlling interest acquired - 6 227
Non-controlling interest start-up companies - 603
Dividend paid (4 550) (5 079)
Dividend paid to non-controlling interest (14 673) (20 473)
Equity – closing balance 313 830 266 561
Basis of preparation
The audited summary consolidated financial statements are prepared in
accordance with the requirements of the JSE Limited Listings Requirements for
abridged reports, and the requirements of the Companies Act applicable to
summary financial statements. The Listings Requirements require provisional
reports to be prepared in accordance with the framework concepts and the
measurement and recognition requirements of International Financial Reporting
Standards (IFRS) and the SAICA Financial Reporting Guides as issued by the
Accounting Practices Committee and Financial Pronouncements as issued by the
Financial Reporting Standards Council and to also, as a minimum, contain the
information required by IAS 34 Interim Financial Reporting. The accounting
policies applied in the preparation of the consolidated financial statements,
from which the summary consolidated financial statements were derived, are in
terms of International Financial Reporting Standards and are consistent with
the accounting policies applied in the preparation of the previous
consolidated annual financial statements except as disclosed in the changes
in accounting policies note.
The audited summary consolidated financial statements have been prepared
under the supervision of Suren Singh (MBA, MITM, CIS and ABP) in his capacity
as Chief Financial Officer and are the full responsibility of the directors.
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.
Unqualified audit opinion
These summary consolidated financial statements for the year ended 31 May
2014 have been audited by Mazars (Gauteng) Inc., who expressed an unmodified
opinion thereon. The auditor also expressed an unmodified opinion on the
annual financial statements from which these summary consolidated financial
statements were derived. A copy of the auditor's report on the summary
consolidated financial statements and of the auditor's report on the annual
consolidated financial statements are available for inspection at the
company's registered office, together with the financial statements
identified in the respective auditor's reports.
Introduction
The directors of Morvest present the audited summary consolidated financial
results for the year ended 31 May 2014 (“the year”), reflecting satisfactory
performance under challenging conditions. Growth was achieved in revenue,
EBIITDA and headline earnings despite these challenging market conditions.
The audited summary consolidated financial statements for the year were
authorised for issue by the directors on 29 August 2014.
Group profile
Morvest Business Group is a black empowered, level 2 globally diversified
investment holding group with an international footprint spanning Africa
(South Africa, Mozambique and Nigeria), India, UAE and USA. The Group's
operations are aligned into three key divisions: Business and Industrial
Services (including Professional Services and Outsourcing Solutions), ICT
Solutions and Retail and Other Investments.
Operational overview
The South African and Nigerian markets continued to be challenging for the
period under review.
Despite such challenging conditions good performance was achieved across the
Group with revenue up by 15.1% to R1.1 billion from the prior year. Business
and Industrial Services contributed 46.4% and the ICT Solutions Division
contributed the balance.
Approximately 94% of the revenue was generated in South Africa and the
balance from the rest of Africa.
EBIITDA amounted to R157.5 million (2013:R141.5 million) reflecting an
increase of 11.3% (2013: 15.4%).
The Group posted headline earnings of R 46.6 million (2013: R40.0 million)
translating into headline earnings per share of 10.23 cents (2013: 8.20
cents), up by 16.4%.
Based on the actual number of shares in issue of 880 million the earnings per
share is 4.04 cents and headline earnings per share in 5.29 cents.
Dividend declaration
Dividend declaration – publication date 29 August 2014
The Board has declared a final gross cash dividend of 1 cent per
ordinary share payable out of income in respect of the year ended 31
May 2014. No interim dividend was declared during the period therefore
a total dividend of 1 cent per share was declared to shareholders.
The total STC credits utilised as part of this declaration amount to
R6.6 million. The number of ordinary shares in issue at the date of
this declaration is 880 million and consequently the STC credits
utilised amount to 0.75 cents per share. The Company's tax reference
number is 9393348157. Ordinary shareholders who are liable to pay
dividends tax will receive a net dividend amount of 0.9625 cents per
share. Shareholders exempt from paying dividends tax will receive 1
cent per share. The local dividend tax rate is 15%.
The final dividend will be paid on Monday, 27 October 2014 to
shareholders recorded in the books of the Company at the close of
business on the record date, Friday, 24 October 2014.
The salient dates relating to the ordinary dividend are as follows:
Last day to trade cum dividend 17 October 2014
Shares commence trading ex-dividend 20 October 2014
Record date 24 October 2014
Payment date of the dividend 27 October 2014
Share certificates may not be dematerialised or rematerialised between
Monday, 20 October 2014 and Friday, 24 October 2014, both days
inclusive.
Goodwill
Goodwill is reviewed annually for impairment, or more frequently when there
are indicators that impairment may have occurred, by comparing the carrying
value to its recoverable amount. Impairment losses are included in other
operating expenses in the statement of comprehensive income.
During the annual review of the goodwill impairment performed at year-end,
goodwill impairment for the current year of R12 325 000 (31 May 2013: R33 465
000) reflects a write-down for the following subsidiary:
R'000
- Morvest Mithratech (Proprietary) Limited 12 325
Business combinations
The provisional accounting for the acquisition of iSolve and SQLDB was
finalised during the year. Management did not identify any changes to
identifiable assets (including intangible assets) and identifiable
liabilities and contingent liabilities.
BVI Group Key Executive Scheme (“BVI”)
As announced on 22 August and 15 October 2013 the BVI 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 22
of August 2013.
In terms of the transaction BVI 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 BVI by Morvest subscribing to cumulative redeemable
preference shares in BVI. 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 BVI out of
dividends and other distributions received on the Morvest share.
The redemption date of the preference shares shall be on the seventh
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
boosted 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 BVI share scheme.
Share repurchase
The Company repurchased 12.5 million shares with a value of R 2.1 million on
the open market in terms of the share repurchase programme.
As at 31 May 2014 the total number shares in issue is 880 million.
Segmental reporting
The Business and Industrial Services division contributed 46.4% (2013:59%) of
group turnover with ICT Solutions contributing the balance of 53.6% (2013:
41%).
May 2014 External Internal Total Profit/ Total Total
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
and 510 281 66 290 576 571 38 955 548 673 194 034
Industrial
Services
ICT 589 819 66 191 656 010 63 537 382 844 295 161
Solutions
Corporate 657 138 565 139 222 3 824 894 589 652 142
Elimination - (271 046) (271 046) (34 243) (1 182 211) (811 272)
Total 1 100 757 - 1 100 757 72 073 643 895 330 065
May 2013 External Internal Total Profit/ Total Total
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 560 927 45 543 606 470 15 009 544 818 218 131
and
Industrial
Services
ICT 395 237 224 023 619 260 41 448 323 784 329 266
Solutions
Corporate - 183 310 183 310 65 553 934 352 639 302
Elimination - (452 876) (452 876) (98 433) (1 120 709) (771 015)
Total 956 164 - 956 164 23 577 682 245 415 684
The Retail and Other Investments segment has not been shown separately above
as it is not a material reportable segment in terms of IFRS 8 and has been
included in the ICT Solutions segment.
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.
Contingent liabilities
Contingent liabilities relating to certain legal matters as at year-end have
a maximum exposure of R0.5 million.
Subsequent events
Subsequent to year-end the Group has entered into the following business
combinations:
Simmons (South Africa) (“Simmons”)
Morvest Retail (Proprietary) Limited a 50.01% owned subsidiary of Morvest
through its wholly owned subsidiary Whoohaa (trading as Simmons SA), has
entered into an agreement with Simmons in terms whereof the Purchaser will
acquire certain business assets and business liabilities (“the Business”) of
Simmons for a total purchase consideration of R75 million, payable as
follows:
- R 40 000 000 payable upon all conditions precedent having been met.
- R 15 000 000 first tranche payable within 5 days, after the determination
of the warranted PAT for the first PAT period of R 18 000 000
- R 10 000 000 second tranche payable within 5 days, after the determination
of the warranted PAT for the second PAT period of R 22 000 000
- R 10 000 000 payable within 5 days, after the determination of the
warranted PAT for the third PAT period of R 27 500 000
- The purchase price calculated is R 71 138 635 after discounting the
purchase price to present value at 9% based on payment dates at set in the
agreement.
Subsequent to the completion date, the effective shareholding of Whoohaa
(trading as Simmons SA) will be 75% held by Morvest Retail and 25% by
previous owners of Simmons, in terms of the conditions set in the sale
agreement.
Simmons manufactures and distributes beds, bed bases, linen, bedding and
ancillary and associated products, and is the South African partner of
Simmons Bedding Company, which markets and sells Simmons International?s
products worldwide under the Simmons International guidelines. Simmons
International has a 140 year history in manufacturing and selling high
quality mattresses to the premium markets.
Omman Investments Pty Ltd (“Omman”)
Morvest Retail (Proprietary) Limited a 50.01% owned subsidiary of Morvest,
has entered into an agreement with Omman, in terms where-of Morvest Retail
has acquired 50.05% of the share capital of Omman for a total purchase
consideration of R 2,5 million.
Omman is a property rental business whose sole property is Ushaka Mall
situated in Stanger, Durban.
Provisional values
Simmons Omman on acquisition
R'000 R'000 R'000
Property, plant and equipment 1 732 1 732
Investment property - 54 691 54 691
Inventories 10 418 - 10 418
Trade and other receivables 11 373 1 143 12 516
Other financial assets - 8 356 8 356
Cash and cash equivalents - 291 291
Other financial liability (9 517) (51 528) (61 045)
Trade and other payables (12 777) (961) (13 738)
Deferred tax - (3 021) (3 021)
Non-controlling interest - (4 481) (4 481)
Net identifiable assets and
liabilities 1 229 4 489 5 718
Goodwill on acquisition 69 909 (1 989) 67 920
Total consideration 71 138 2 500 73 638
Contingent consideration 31 138 - 31 138
Consideration paid in cash 40 000 2 500 42 500
Total consideration 71 138 2 500 73 638
Consideration paid in cash - - -
Cash acquired - 291 291
Net cash inflow - 291 291
The acquisition of the above subsidiaries are 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 subsidiaries will be accurately determined by the next reporting
date.
Morvest has identified the above businesses of Simmons and Omman to be in
line with Morvest's diversification strategy, as a strategic opportunity
which could yield highly profitable returns and could create significant
value for the retail portfolio of Morvest through Morvest Retail.
Disposal of R and S Consulting (“R&S”)
In an announcement dated 3 July 2014, shareholders were advised that Morvest
had entered into the sale agreement in terms of which Morvest agreed to sell
its 50.01% shareholding in R&S, to Zukubu.
Morvest holds a 50.01% shareholding in R&S. The remaining shareholding of R&S
is held by EVI and Kadwa who hold a 24.99% and 25% shareholding in R&S
respectively.
Morvest, EVI and Kadwa entered into the sale agreement with Zukubu whereby
Zukubu agrees to acquire the entire issued share capital of R&S from the
sellers, together with any outstanding claims held by the sellers in R&S, for
a total purchase consideration R141.7 million. The total consideration of
R141.7 million includes a maximum agterskot payment of R15 million, payable
to Morvest and Kadwa upon successful renewal of certain agreements with a key
client on terms which are substantially the same or better than those
currently attaching to those agreements.
Outlook
Morvest continues to see the next 12 – 18 months as remaining challenging
with certain key contracts up for renewal. A significant focus for the year
ahead will be bedding down the Simmons acquisition.
The Group has, following the successful implementation of the BEE transaction
in 2013, been able to secure an improved BEE rating of level 2. A strategic
focus for the medium to long term will be to maintain and increase black
female shareholding.
Expansion further into Africa and internationally is a key strategic
objective with significant growth opportunities in the USA and emerging
markets.
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
29 August 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)
Sponsor:
Sasfin Capital (a division of Sasfin Bank Limited)
Auditors:
Mazars (Gauteng) Inc.
Date: 29/08/2014 03:03:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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