Wrap Text
Unaudited Consolidated Interim Results for the Six Months Ended 31 December 2014
COGNITION HOLDINGS LIMITED
(formerly FoneWorx Holdings Limited)
Incorporated in the Republic of South Africa
(Registration number 1997/010640/06)
Share code: CGN ISIN: ZAE000197042
(“Cognition” or “the group” or “the company”)
UNAUDITED CONSOLIDATED INTERIM
RESULTS FOR THE SIX MONTHS
ENDED 31 DECEMBER 2014
Highlights
REVENUE -1.31%
PROFIT BEFORE TAX +11.87%
EARNINGS PER SHARE +8.58%
HEADLINE EARNINGS +9.23%
NET ASSET VALUE PER SHARE +12.56%
December 2014 compared to December 2013.
COMMENTARY
The board of directors of Cognition (“the board”) present the unaudited condensed consolidated
interim results for the six months ended 31 December 2014 (“the interim period”) which should be read
in conjunction with the most recent audited annual financial statements for the year ended 30 June
2014.
The unaudited condensed consolidated interim financial statements are available to be viewed on the
company’s website: www.cgn.co.za
The transition from AltX to the Main Board of the JSE Limited (“JSE”) and simultaneous name change
from FoneWorx Holdings Limited to Cognition Holdings Limited has been completed and we are very
excited about the next phase of development of our strategy in the Knowledge Economy.
An important element of the transition was to refocus the group’s strategy to concentrate on a
roadmap of data analytics, research and building communities of people with shared interests who
align themselves to a brand or philosophy.
Our knowledge strategy is to leverage off over 19 years’ experience in active data services (SMS,
IVR, USSD, MMS) in developing large databases for our clients and ourselves, based on our knowledge
mapping process infused in our Knowledge 350 process. This strategy will be underpinned by
acquisitions or investments in businesses that can ‘fast track’ this strategy.
Following our investment in BMi Research Proprietary Limited (“BMi Research”) (35%) and Livingfacts
Proprietary Limited (“Livingfacts”) (44%), we acquired 63% in BMI-Sport Info Proprietary Limited
(“BMi Sport Info”), which is an independent research company (unrelated to BMi Research), which deals
exclusively with the sport and sponsorship market. This is a niche market with huge potential and
complements our other two investments and our Knowledge strategy.
The decline in revenue for the interim period is a result of:
1. Our transition which resulted in a re-alignment of soliciting less profitable revenue,
particularly if it was not aligned to our desired future strategy. Certain historical revenue, which
is no longer seen as core to the future strategy and which was previously undertaken despite very
small margins and occupying management’s time, will no longer be undertaken. Management time will be
refocused on deploying the new strategy. Operationally this trend is anticipated to continue for the
remainder of the 2015 financial year.
2. A decline in faxing revenues, which has been anticipated, was more pronounced due to the sluggish
economy and general lack of business confidence. The Board has anticipated a plateau and then a
decline in faxing volumes, hence the rationale for the re-engineering of the business into the
Knowledge Economy. We do however expect to continue enjoying good annuity income from faxing services
with around 300 000 subscribers using the service. In addition, we have launched a voice messaging
service to the fax service which we believe will revitalize volumes.
3. Timing issues relating to certain projects within MediaWorx, which we had anticipated would be
forthcoming in the first half of the year, were delayed. We are hopeful that these will materialise
within this calendar year.
However, the decline in revenue did not have a negative impact on profits, with profits after tax
attributable to the owners of the parent increasing by 9.61% and HEPS increasing by 8.22%.
The group’s revenue for the period compared to the corresponding period in the previous financial
year declined by 1.31% down to R62,4 million from R63,2 million, while gross profit increased by
3.68% from R36,5 million to R37,8 million. Profit before tax increased by 11.87% from R19 million to
R21,3 million and profit after tax for the period increased by 18.1% from R13,4 million in the
previous corresponding period to R15,9 million in this reporting period.
Earnings Before Interest, Tax, Depreciation and Amortisation increased by 8.51% to R23,5 million up
from R21,7 million. The improvement in all earnings can be attributed to an improved gross profit
margin across most of the products in the group and the returns achieved via our investments in
associate and subsidiary companies.
During the period under review the group made two significant investments using its cash resources
and by issuing script. It furthermore paid out R16,5 million in dividends that related to the
earnings in the previous period. The net result is that Cash resources reduced by 1.96% from R104,8
million down to R102,7 million when compared to 31 December 2013 however trade and other payables
increased by 106.53% from R16,4 million to R33,9 million. This increase is due to obligations
relating to some of the business investments made that were not yet due and payable at the reporting
date.
The total asset value of the group increased by 22.16% from R151 million as at 31 December 2013 to
R184 million as at 31 December 2014 and net asset value per share increased from 90.9 cents per share
to 102.4 cents per share, an increase of 12.56%.
REVIEW OF OPERATIONS
Given our exciting new strategy in data, information and knowledge, we will also be looking at
employing more specialised skills to execute on the strategy. This will be complemented by our active
drive to seek investments in companies that focus in actuarial sciences, data analytics, social
media, data management and consulting. These investments will complement our recent acquisitions.
The group’s historical skill sets and intellectual know-how in "call to action" campaigns using
various bearer technologies such as: SMS, USSD, IVR, MMS and IM, will form the basis of our data
gathering strategy (raw data) which will extend into community building (information) and then
culminate in knowledge creation using our proprietary Knowledge 350 process. This will result in the
development of knowledge dashboards linked to marketing dashboards which enable one to one marketing
of anticipated, relevant and meaningful information to consumers at an individual level.
Active Data Exchange Services
This division includes faxing services, bespoke business applications and the group’s traditional
bearer services incorporating: SMS, IVR, USSD, MMS, IM, WEB and Fulfillment services, which are
marketed via MediaWorx.
During the interim period this division hosted over 300 services on behalf of 80 clients. Whilst the
lion’s share of these services are "call to action campaigns" linked to branded products, (which are
typically initiated via above, below and through the line media), our focus going forward is to align
the data collected via these campaigns to long-term strategically oriented community build
programmes, giving the client more insight into the consumers who participated in the call to action
campaigns. The objective going forward is to accumulate the data in a manner that provides clients
with longevity of data which is; clean, current, consistent, conformed and comprehensive. This data
can then be transitioned to information and then, over time, knowledge providing our clients with
much more value than the traditional call to action campaign.
We have been pleased with our initiatives in aligning our active data exchange services to the bigger
initiative of Knowledge 350 and have seen a number of blue chip clients starting to see the value of
building “communities” and understanding the long term potential of extracting the value of having
the deeper granularity of each customer.
MediaWorx did experience a more challenging market with a number of clients taking much longer to
accept quotations and becoming much more cost conscious in an endeavour to preserve cash in a
difficult economy.
We managed a number of successful campaigns such as: X Factor SA, Strictly Come Dancing, SA's Got
Talent (SABC), Carling Black Label, Hansa, Castle, Miller, Castle Lite, Redds, Idols, Ola Magnum,
Tropika, SATMA Awards, SAMA Awards, Imana, Pep Campaigns, Bokomo, Lucky Star, Spier Wines, Lotus Free
Play Friday, Caxton Magazines, AFCON, Coke, Pick n Pay and many more.
MediaWorx Africa continued to make inroads into Africa with a number of successful campaigns managed
outside South Africa such as: Big Brother 9 (DSTV), Kellogg’s (South Africa, Zambia, Namibia and
Zimbabwe) Samsung, and many others. We continue to maintain and build a good footprint in Africa via
relationships with 96 networks in 38 countries.
Knowledge 350
Knowledge comes from information and that, in turn, comes from data. Data however requires a lot of
work before it is actually something useful. Raw data needs integration, understanding, design and
modeling and architecting, before it can be monetized. Knowledge 350 is accordingly not only an
ideal extension to our existing Active Data Exchange Services, but also a new stand-alone division
with independently solicited clients.
Data is an asset that CFO’s are realising should have status on the balance sheet alongside property,
plant and equipment.
Knowledge 350 creates the foundation for a new future strategy of the group and opens up a huge
number of new opportunities particularly for acquisitions, to support each of the fifteen components
making up Knowledge 350.
During the interim period positive operational and strategic inroads were made in enhancing the
objectives for Knowledge 350.
Cognition’s proprietary software, (MyPoint) was developed in-house to enhance our research
capabilities and to this end we formed “Cognition Insights” which is a vehicle for Cognition clients
to do targeted marketing and market research through the use of a well monitored and validated sample
of panelists who are representative of the South African population.
MyPoint manages communities that are an aggregation of like-minded consumers’ who support a
particular brand. Communications with these consumers is managed in compliance with the Protection of
Personal Information Act (POPI) to maintain privacy and permission-based marketing.
Business’ data demands, in relation to such communities, are ever expanding and evolving, meaning
that the information backbone is similarly expanding. This very often requires data integration, data
cleansing, data profiling and, very importantly, data governance in line with the Consumer Protection
Act (“CPA”), Electronic Communications and Transactions Act (“ECT”) and POPI. All these key
components are offered via the Knowledge 350 consulting process.
MyPoint will focus on research companies and clients for varied uses such as: surveys, mystery
shopping, geolocation activities, gamification, competitions, product launches and social media
activities.
The group’s strategic focus during 2015 is to focus on community builds using Knowledge 350 as the
roadmap that enables and guides clients to make the transition from “segmented marketing” to “one-to-
one” marketing which initially starts with the data collected from clients’ own lists or call to
action campaigns (MediaWorx) and ends up building a singular, granular view of each customer
represented by detailed dashboard and business intelligence tools.
The purpose of these communities (and opted-in databases) would be to enable clients to understand
who their customers are through a series of profiling exercises in order to be able to interact (and
market) with relevance to their likes, interests, demographics and psychographics.
We have already commenced with a number of community build projects using key elements of Knowledge
350 in the build process.
We have commenced a few projects with some of our existing clients such as: Builders Warehouse, Pep
Stores and SABMiller where elements of Knowledge 350 have been incorporated into the community build
project which is the commencement of mapping knowledge assets and starts the discussion around
developing strategic insights.
Prospects
It is important to note that our move into the Knowledge Economy is incremental to our existing
business and creates a completely new revenue stream to the group without any adverse impact on our
historical focus and revenue-generating capability.
During 2015 we will focus on:
- encouraging the plethora of clients who currently engage in call to action campaigns, to develop a
Knowledge Strategy using the Knowledge 350 roadmap of converting raw data to information and finally
knowledge. Once we have mapped the mission–critical knowledge assets with our clients, our strategy
is then to develop and exploit the knowledge for monetized value.
- identifying new clients to develop community builds and develop structured knowledge strategies
using the 15 steps in Knowledge 350.
- promoting our new division, Cognition Insights, which incorporates our newly built proprietary
software (MyPoint) for panels. This will be a significant representation of the population who will
complete surveys and tasks on behalf of brands earning gratuity points in the process.
- aggressively pursuing our acquisition strategy to acquire skills to complement our Knowledge 350
strategy. During the interim period Cognition acquired 63% of BMi Sport Info which specializes in
research for the sport and sponsorship market.
CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
Growth as at as at as at
31 December 31 December 30 June
2014 2013 2014
R'000 R'000 R'000
ASSETS
Non-current assets 123.98% 54 512 24 338 29 018
Property, plant and equipment 1.02% 15 672 15 514 15 847
Intangible assets 31.61% 11 613 8 824 9 911
Goodwill 15 504 - -
Investment in associates 11 723 - 3 080
Deferred tax asset - - 180
Current assets 2.63% 130 272 126 932 138 546
Inventory 159.18% 1 270 490 460
Current tax receivable 520 - -
Trade and other receivables 18.85% 25 779 21 691 18 944
Cash and cash equivalents -1.96% 102 703 104 751 119 142
Total assets 22.16% 184 784 151 270 167 564
EQUITY AND LIABILITIES
Capital and reserves 13.88% 140 859 123 686 137 731
Share capital 0.74% 137 136 136
Share premium 6.64% 55 972 52 488 52 488
Accumulated profits 17.25% 83 317 71 062 85 107
Attributable to the equity holders of
the parent 12.73% 139 426 123 686 137 731
Non-Controlling interest 1 433 - -
Non-current liabilities 25.05% 6 115 4 890 4 425
Interest bearing liabilities -13.09% 3 454 3 974 3 479
Deferred tax liability 190.50% 2 661 916 946
Current liabilities 66.61% 37 810 22 694 25 408
Trade and other payables 106.53% 33 893 16 411 16 827
Provisions -70.81% 1 304 4 468 6 323
Tax payable 274.59% 1 296 346 720
Unclaimed dividends 106 - 106
Current portion of interest bearing
liabilities -17.56% 1 211 1 469 1 432
Total equity and liabilities 22.16% 184 784 151 270 167 564
Net asset value per share (cents) 12.56% 102.36 90.94 101.27
Net tangible asset value per share
(cents) -2.14% 82.65 84.46 93.98
Number of shares in issue 1.19% 137 615 798 136 002 041 136 002 041
CONSOLIDATED CONDENSED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
Growth six months six months 12 months
ended ended ended
31 December 31 December 30 June
2014 2013 2014
R'000 R'000 R'000
Revenue -1.31% 62 448 63 279 118 198
Cost of Sales -8.09% (24 651) (26 822) (48 122)
-
Gross profit 3.68% 37 797 36 457 70 076
Other operating income -46.36% 323 603 587
Staff costs -1.83% (12 370) (12 600) (23 063)
Depreciation and amortisation expense -15.57% (2 053) (2 432) (4 578)
Other operating expenses 10.83% (6 060) (5 468) (9 671)
Finance costs -13.57% (197) (228) (440)
Income from associates 643 - -
Investment income 18.85% 3 178 2 674 5 668
Profit before tax 11.87% 21 261 19 006 38 579
Income tax expense -3.16% (5 396) (5 572) (11 098)
Profit for the period 18.10% 15 865 13 434 27 481
Other comprehensive income - - -
Total comprehensive income for the year 18.10% 15 865 13 434 27 481
Profit attributable to:
Non-controlling interest 1 141 - -
Owners of the parent 9.61% 14 724 13 434 27 481
Headline earning reconciliation
Adjustment for:
Net after tax (profit) loss on sale of
property, plant and equipment .
(50) - -
Headline earnings 9.23% 14 674 13 434 27 481
Weighted average number of shares in issue 137 282 522 136 002 041 136 002 041
Basic earnings per share (cents) 8.58% 10.73 9.88 20.21
Headline earnings per share (cents) 8.22% 10.69 9.88 20.21
Diluted earnings per share(cents) 8.58% 10.73 9.88 20.21
Diluted Headline earnings per share (cents) 8.22% 10.69 9.88 20.21
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN EQUITY
Total Attributable Non-
Share Share Share Retained to Equity Controlling Total
Capital Premium Capital Income Holders Interest Equity
R’000 R’000 R’000 R’000 R’000 R’000 R’000
Audited balance at
1 July 2013 136 52 489 52 625 73 946 126 571 - 126 571
Changes in equity
Total comprehensive
income for the
period - - - 13 434 13 434 - 13 434
Dividends - - - (16 319) (16 319) - (16 319)
Total changes - - - (2 885) (2 885) - (2 885)
Unaudited balance
at 1 January 2014 136 52 489 52 625 71 061 123 686 - 123 686
Changes in equity
Total comprehensive
income for the
period - - - 14 045 14 045 - 14 045
Dividends - - - 14 045 14 045 - 14 045
Total changes - - - 85 106
Audited balance at
1 July 2014 136 52 489 52 625 14 724 137 731 - 137 731
Changes in equity
Total comprehensive
income for the
period - - - - 14 724 1 141 15 865
Issues of shares 1 3 484 3 485 (16 514) 3 484 - 3 484
Non-Controlling
interest as a
result of
acquisition - - - (1 790) - 292 292
Dividends - - - 83 316 (16 514) - (16 514)
Total changes 1 3 483 3 484 1 695 1 433 3 128
Unaudited balance
at 31 December 2014 137 55 973 56 109 139 426 1 433 140 859
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited
six months six months 12 months
Growth ended ended ended
31-Dec 31-Dec 30-Jun
2014 2013 2014
R'000 R'000 R'000
Cash flow from operating
activities 26 375 14 529 36 253
Net cash generated from operations 28 028 16 862 40 932
Finance costs (197) (228) (440)
Investment income 3 178 2 674 5 669
Normal tax paid (4 634) (4 779) (9 908)
Cash flow from investing
activities (26 054) (1 959) (8 691)
-
Purchase of property, plant and equipment (668) (616) (2 180)
Proceeds on disposal of property, plant and
77 96 252
equipment
Investment in Associates (4 514) - (3 081)
Increase in loans receivable (4 496) - -
Acquisition of business (13 531) - -
Product development cost (2 922) (1 439) (3 682)
Cash flow from financing activities (246) (835) (1 471)
Dividends paid (16 513) (16 319) (16 283)
Net increase in cash and cash equivalents (16 439) (4 584) 9 808
Cash and cash equivalents at beginning of
119 142 109 335 109 334
the period
Cash and cash equivalents at
end of the period 102 703 104 751 119 143
BASIS OF PREPARATION
The accounting policies applied in the preparation of these unaudited consolidated interim results,
which are based on reasonable judgements and estimates, are in accordance with International
Financial Reporting Standards and are consistent with those applied in the annual financial
statements for the year ended 30 June 2014. These unaudited consolidated interim results, as set out
in this report, have been prepared in terms of IAS 34 – Interim Financial Reporting, the Companies
Act, 2008 (Act 71 of 2008), as amended, the SAICA Financial Reporting Guides, as issued by the
Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial
Reporting Standards Council and the Listings Requirements of the JSE.
These financial statements have been prepared under the supervision of Mr Pieter Scholtz CA(SA):
Financial Director.
The unaudited consolidated interim results for the six months ended 31 December 2014 have not been
reviewed by the group’s auditors.
SEGMENTAL REPORTING
Operating segments are reported in a manner consistent with the internal reporting provided to the
chief operating decision makers. These chief operating decision-makers (“the CODM”) have been
identified as the executive committee members who make strategic decisions. The CODM have organised
the operations of the company based on its brands and this has resulted in the creation of the
following reportable segments:
•Active Data Exchange Services
•Knowledge Creation and Management
During the period under review the group merged its BizWorx and MediaWorx divisions and from now on
will report them together under Active Data Exchange Services. The group also created a new division
called Knowledge Creation and Management.
Unaudited Unaudited Audited
six months six months 12 months
ended ended ended
31 December 31 December 30 June
2014 2013 2014
R'000 R'000 R'000
Revenue
Active Data Exchange Services 49 171 61 292 114 439
Knowledge Creation and Management 13 277 1 987 3 759
62 448 63 279 118 198
Cost of sales
Active Data Exchange Services (21 234) (26 729) (47 934)
Knowledge Creation and Management (3 417) (93) (188)
(24 651) (26 822) (48 122)
Gross Profit
Active Data Exchange Services 27 937 34 563 66 505
Knowledge Creation and Management 9 860 1 894 3 571
37 797 36 457 70 076
The accounting policies applied to the operating segments are the same as those described in the
basis of preparation paragraph above. Active Data Exchange Services are provided within South Africa
as well as in 36 African countries (“Africa sales”). Within the period under review, 1.1% (2013:
1.6%) of its revenue can be attributed to Africa sales. The company allocates revenue to each country
based on the relevant domicile of the client. All of the company’s assets are located in South
Africa.
Active Data Exchange Services currently generates 59.2% (2013: 59.9%) of its revenue through three
large network service providers. The reconciliation of the gross profit to profit before taxation is
provided in the statement of comprehensive income. The CODM reviews these income and expense items on
a group basis and not per individual segment. All assets and liabilities are reviewed on a group
basis by the CODM.
Acquisition of subsidiary
The group acquired 63% of the shareholding in the BMi Sport Info Group with the effective date being
1 July 2014. The fair values of the identifiable net assets and liabilities of the BMI Sport Info
Group as at date of acquisition were:
R’000
Trade and other receivables 1 154
Bank and cash 2 469
Current liabilities (2 836)
Total Equity 787
Non-controlling interest on acquisition ( 291)
Equity attributable to equity holders of the
parent 496
Acquisition value (16 000)
Goodwill (15 504)
Cash outflow on acquisition of subsidiary
Acquisition value (16 000)
Bank and Cash Acquired 2 469
Net cash outflow on acquisition of subsidiary (13 531)
Reconciliation between earnings and
headline earnings
Unaudited Unaudited Audited
six months six months 12 months
Growth ended ended ended
31-Dec 31-Dec 30-Jun
2014 2013 2014
The calculation of earnings per share is
based on profits of R14,7 million
attributable to equity holders of the parent
(2013: R13,4million) and a weighted average
of 137 282 522 (2013: 136 002 041) ordinary
shares in issue during the period. 10.73 cents 9.88 cents 20.21 cents
The calculation of headline earnings per
share is based on profits of R14,7 million
adjusted to R14,6 million attributable to
equity holders of the parent (2013: R13,4
million) and a weighted average of 137 282
522 (2013:136 002 041) ordinary shares in
issue during the period. 10.69 cents 9.88 cents 20.21 cents
Unaudited Unaudited Audited
six months six months 12 months
Growth ended ended ended
31-Dec 31-Dec 30-Jun
2014 2013 2014
R'000 R'000 R'000
Reconciliation between earnings and
headline earnings
Profit attributable to equity holders of
parent 14 724 13 434 27 481
Profit on disposal of property, plant
and equipment: (69) - -
Tax effect of the disposal of property,
plant and equipment 19 - -
Headline earnings 14 674 13 434 27 481
The calculation of diluted earnings per
share is based on profits of R14,7
million attributable to equity holders
of the parent (2013: R13,4million) and a
weighted average of 137 282 522 (2013:
136 002 041) ordinary shares in issue
during the period. 10.73 cents 9.88 cents 20.21 cents
There were no instruments issued during the current period that have a dilutive
impact.
DIVIDEND POLICY
It is the board’s policy to pay annual dividends and therefore no interim dividend has been declared
for this interim period. Dividends paid during the interim period relate to dividends declared in
prior periods.
DIRECTORATE
There were no changes to the board during the interim period.
SUBSEQUENT EVENTS
The Board is not aware of any material events that have occurred between the end of the interim
period and the date of this report.
APPRECIATION
We thank our customers, partners, dealers, staff and other service providers for their continued
support, loyalty and dedication.
For and on behalf of the board
Ashvin Mancha
Chairman
Mark Smith
Chief Executive Officer
Pieter Scholtz
Financial Director
Johannesburg
26 March 2015
Directors: Ashvin Mancha#* - Chairman,
Mark Smith – Chief Executive Officer, Pieter Scholtz - Financial Director,
Gaurang Mooney* (Botswana), Graham Groenewaldt – Sales Director,
Paul Jenkins#*, Roger Pitt#*, Marc du Plessis#, Piet Greyling#
# Non-executive
* Independent
Website: www.cgn.co.za
Company Secretary: Stefan Kleynhans
Sponsor: Merchantec Capital
Transfer Secretaries: Computershare Investor Services Proprietary Limited
Date: 26/03/2015 10:28:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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