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MICROMEGA HOLDINGS LIMITED - Provisional Audited Condensed Annual Consolidated Results for the Year Ended 31 March 2016

Release Date: 26/05/2016 17:23
Code(s): MMG     PDF:  
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Provisional Audited Condensed Annual Consolidated Results for the Year Ended 31 March 2016

MICROmega Holdings Limited
Incorporated in the Republic of South Africa
(Registration number 1998/003821/06)
JSE Share code: MMG ISIN: ZAE000034435
(“MICROmega” or “the company” or “the group”)

PROVISIONAL AUDITED CONDENSED ANNUAL CONSOLIDATED RESULTS FOR THE YEAR ENDED
31 MARCH 2016 AND DIVIDEND DECLARATION

AUDITED CONDENSED GROUP STATEMENT OF PROFIT AND LOSS

                                                                      Audited      Audited
                                                                     31 March     31 March
                                                                         2016         2015
                                                                         R’000        R’000

 Revenue                                                             1 193 921    1 035 683
 Cost of sales                                                       (619 783)    (576 068)
 Gross profit                                                          574 138      459 615
 Other net income/(expenses)                                            22 773       16 590
 Distribution expenses                                                 (7 384)      (4 170)
 Administration expenses                                             (374 779)    (306 093)
 Results from operations                                               214 748      165 942
 Finance income                                                          3 279        5 041
 Finance cost                                                          (5 245)      (1 767)
 Share of profit of equity accounted associate                           1 811        1 978
 Profit before tax                                                     214 593      171 194
 Tax expense                                                          (55 856)     (44 823)
 Profit for the year                                                   158 737      126 371

 Profit attributable to:
 Owners of the parent                                                  145 433      110 653
 Non-controlling interest                                               13 304       15 718
                                                                       158 737      126 371
 Attributable earnings per share (cents)
 Basic                                                                  129.64       101.27
 Diluted basic                                                          126.07        99.45
 Headline                                                               123.43       101.30
 Diluted headline                                                       120.03        99.47

AUDITED CONDENSED GROUP STATEMENT OF OTHER COMPREHENSIVE INCOME

                                                                      Audited      Audited
                                                                     31 March     31 March
                                                                         2016         2015
                                                                        R’000        R’000
 Profit for the year                                                  158 737      126 371
 Other comprehensive income:
 Foreign currency translation differences                               3 347        1 461
 Revaluation of property                                                    -      (2 500)
 Reversal of deal difference reserve                                        -      (1 000)
 Income tax on other comprehensive income                                   -          465
 Total comprehensive income for the year                              162 084      124 797

 Total comprehensive income attributable to:
  Owners of the parent                                                148 780      109 079
  Non-controlling interest                                             13 304       15 718
                                                                      162 084      124 797

Reconciliation of headline earnings:
Profit attributable to owners of the parent                            145 433     110 653
Loss/(profit) on disposal of property, plant and equipment                 116        (68)
Profit on disposal of investment in subsidiaries                       (7 365)           -
Loss on disposal of investments                                            283           -
Impairment of intangible assets                                              -          95
Headline earnings                                                      138 467     110 680



Weighted average number of shares (000s)                               112 185     109 265
Diluted weighted average number of shares (000s)                       115 360     111 270
Total number of shares in issue (000s)                                 112 833     111 504



AUDITED CONDENSED GROUP STATEMENT OF FINANCIAL POSITION

                                                                       Audited     Audited
                                                                         As at       As at
                                                                      31 March    31 March
                                                                          2016        2015
                                                                         R’000       R’000
ASSETS
Non-current assets                                                     691 877     540 579
Property, plant and equipment                                           53 558      58 711
Intangible assets                                                      581 276     432 242
Investments in associates                                               13 648      12 857
Other investments                                                            -         283
Other financial assets                                                   5 063           -
Deferred tax assets                                                     38 332      36 486

Current assets                                                         440 440     439 629
Inventories                                                             41 851      28 377
Trade and other receivables                                            300 563     239 225
Income tax receivable                                                    6 575       8 251
Other financial assets                                                   2 024      15 891
Cash and cash equivalents                                               89 427     147 885



TOTAL ASSETS                                                         1 132 317     980 208

EQUITY AND LIABILITIES
EQUITY                                                                 766 508     671 673
Share capital and share premium                                        266 852     266 203
Other reserves                                                          12 333       6 261
Retained earnings                                                      411 651     330 218
Non-controlling interest                                                75 672      68 991

LIABILITIES
Non-current liabilities                                                103 991      73 125
Other financial liabilities                                              4 998      11 371
Deferred vendor payments                                                27 343      13 333
Deferred tax liabilities                                                71 650      48 421

Current liabilities                                                    261 818     235 410
Trade and other payables                                               161 646     166 674
Other financial liabilities                                              3 347       3 101
Income tax payable                                                      11 879       9 688
Deferred vendor payments                                                35 409      55 947
Bank overdraft                                                          49 537           -

TOTAL LIABILITIES                                                      365 809     308 535

TOTAL EQUITY AND LIABILITIES                                         1 132 317     980 208

Net asset value per share (cents)                                       624.20      540.50
Net tangible asset value per share (cents)                              109.07      152.86



AUDITED CONDENSED GROUP STATEMENT OF CASH FLOW

                                                                       Audited     Audited
                                                                      31 March    31 March
                                                                          2016        2015
                                                                         R’000       R’000

Cash flow from operating activities excluding 
working capital changes                                                202 450     151 541
Movement in working capital                                           (76 004)    (47 845)
Cash flow from investing activities                                  (130 294)    (70 981)
Cash flow from financing activities                                  (104 147)       6 324
(Decrease)\Increase in cash and cash equivalents                     (107 995)      39 039
Cash and cash equivalents at the beginning of the year                 147 885     108 846
Cash and cash equivalents at the end of the year                        39 980     147 885


AUDITED CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY

                                                                       Audited     Audited
                                                                      31 March    31 March
                                                                          2016        2015
                                                                         R’000       R’000

Balance at the beginning of the year                                   671 673     504 269

Profit for the year                                                    158 737     126 371
 Other comprehensive income                                              3 347     (1 574)
 Transactions with owners, recorded directly in equity                (41 665)      42 607
 Changes in ownership interest in subsidiaries                        (25 584)           -
 Balance at the end of the year                                        766 508     671 673


NOTES TO THE GROUP FINANCIAL INFORMATION

1. Basis of preparation

These provisional audited condensed annual consolidated financial statements for the year ended 31 March 2016 are prepared
in accordance with the framework concepts and the recognition and measurement criteria of International Financial Reporting
Standards (IFRS), its interpretations adopted by the International Accounting Standards Board (IASB), the presentation and
the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting
Pronouncements as issued by Financial Reporting Standards Council, IAS 34 – Interim Financial Reporting, the Listings
Requirements of the JSE Limited and the requirements of the Companies Act of South Africa (Act 71 of 2008), as amended.
The provisional audited condensed annual consolidated financial results are prepared in accordance with the going concern
principle under the historical cost basis as modified by the fair value accounting of certain assets and liabilities where required
or permitted by IFRS. The provisional audited condensed annual consolidated financial results have been prepared under the
supervision of Russell Dick, CA (SA), the Financial Director and have been audited by the company’s auditors.

The provisional audited condensed annual consolidated financial statements are extracted from the audited information and
are available for inspection at the company’s registered office.

The directors take full responsibility for the preparation of the report and confirm the financial information has been correctly
extracted from the underlying audited annual consolidated financial information.

All financial information presented in South African Rand has been rounded to the nearest thousand.

2. Significant accounting policies

These provisional audited condensed annual consolidated financial statements have been prepared using accounting policies
that comply with IFRS and are consistent with those used in the audited annual consolidated financial statements for the year
ended 31 March 2015.

3. Audit opinion

The annual consolidated financial statements were audited by the group’s auditors, Nexia SAB&T, and their unqualified audit
report is available for inspection at the group’s registered office.

4. Business combinations

Profit Reform Proprietary Limited Trading as “COID Support”
On 1 August 2015, the group acquired a 51% interest in COID Support for a consideration of R4.6 million. Goodwill to the value
of R4.3 million was accounted for. The net assets acquired amounted to R0.7 million and a non-controlling interest of R0.4
million was recognised.

Nerdworks Proprietary Limited
On 1 September 2015, the group acquired a 51% interest in Nerdworks Proprietary Limited for a consideration of R7.4 million.
Goodwill to the value of R6.2 million was accounted for. The net assets acquired amounted to R2.3 million and a non-controlling
interest of R1.1 million was recognised.

Yonke Education and Training Solutions Proprietary Limited
On 1 September 2015, the group acquired a 50% interest in Yonke Education and Training Solutions Proprietary Limited for a
consideration of R3.1 million. Goodwill to the value of R1.8 million was accounted for. The amount of net assets acquired
amounted to R2.6 million and a non-controlling interest of R1.3 million was raised.

The group has effective control of the board of directors of Yonke Education and Training Solutions Proprietary Limited by
means of an additional deciding vote.

The Training Room Online Proprietary Limited
On 1 October 2015, the group acquired a 100% interest in The Training Room Online Proprietary Limited for a consideration
of R36.8 million. Goodwill to the value of R33.4 million was accounted for. The amount of net assets acquired amounted to
R3.4 million.

The fair value of assets acquired and liabilities assumed relating to the above business combinations are subject to change
should additional information become available within the 12 month re-measurement period from date of acquisition.

5. Disposal of subsidiaries

GIM Holdings Proprietary Limited
On 1 September 2015, the group disposed of its 100% interest in GIM Holdings Proprietary Limited for a consideration of R9.5
million, which resulted in a loss of control of GIM Holdings Proprietary Limited. This event resulted in a profit of R6.4 million
recorded in profit and loss.

Go Mobile Proprietary Limited
On 2 March 2016, the group disposed of its 50% interest in Go Mobile Proprietary Limited for a consideration of R2.9 million,
which resulted in a loss of control of Go Mobile Proprietary Limited. This event resulted in a profit of R1.1 million recorded in
profit and loss and the re-cycling of R0.6 million to non-controlling interest in equity.

6. Segment information

                                                                             Audited             Audited
                                                                            31 March            31 March
                                                                                2016                2015
                                                                               R’000               R’000

 SEGMENT REVENUE
 Occupational health and safety                                               452 594            333 253
 Labour supply                                                                217 726            264 071
 Information technology                                                       494 221            399 605
 Financial services                                                            46 821             38 378
 Holdings and consolidated                                                   (17 441)                376
 Total revenue                                                              1 193 921          1 035 683

 SEGMENT PROFIT / (LOSS)
 Occupational health and safety                                                72 582             65 545
 Labour supply                                                                  4 057              2 125
 Information technology                                                        87 184             59 123
 Financial services                                                             8 176              5 672
 Holdings and consolidated                                                   (26 566)           (21 812)
 Total profit                                                                 145 433            110 653

 SEGMENT ASSETS
 Occupational health and safety                                               406 843            409 512
 Labour supply                                                                 59 535             60 566
 Information technology                                                       421 999            283 969
 Financial services                                                            52 048             71 914
 Holdings and consolidated                                                    191 892            154 247
 Total assets                                                               1 132 317            980 208

7. Corporate Governance and changes to the board of directors of MICROmega (“board”)

MICROmega has embraced the recommendations of the King III Report on governance and strives to provide reports to
shareholders that are timely, accurate, consistent and informative.

Alan Barrington Swan resigned as Lead Independent Non-Executive Director with effect from 9 September 2015.

Donald Passmore was appointed as an Independent Non-Eexecutive director on 17 March 2016.

8. Subsequent events

No other significant events have occurred in the period between the reporting date and the date of this report.

9. Commentary on results

The group has produced reasonable growth for the year under review given that it was the most challenging in our history.
Earnings per share (“EPS”) grew by 28% and headline earnings per share (“HEPS”) by 22%. In both instances this growth was
negatively impacted by an unanticipated deferred tax charge of R5.5 million, which arose as a result of the recent increase in
the rate of capital gains tax. Without this additional charge, EPS would have grown by 33% and HEPS by 27%.

It is a testament to the strength and quality of our products and services that earnings for the second half of the year (despite
the seasonally poor Christmas and Easter vacation periods both falling into the second six months) were above that achieved
in the first six months. This was mainly as a result of increased customer focus as all operations within the group were forced
to work harder to secure business. The previous few years had provided us with fairly easily achieved high levels of growth.
However, over the course of this year we witnessed cost cutting measures across virtually our entire customer base in both
the private and public sector. There were also a number of substantial orders within the public sector that could not be
completed at year-end due to a combination of funding issues and delays associated with the impending local government
elections. This will mostly result in timing differences as the orders should be fulfilled in the present financial year.

We witnessed another year of growth - albeit at more modest levels - from NOSA, our health and safety business, as our
improved technology platforms generated good levels of business to offset the cutbacks that we experienced from some of our
major international customers. Sebata, our software and related services business, once again had another year of very strong
earnings growth with an increase of 83% over the prior year as it continued to make strong inroads with our proprietary
technology solutions. Despite this, the information technology division only improved profitability overall by a little less than
50%. This was mainly due to a decline in earnings at our water technology business which, despite a growing order book, was
unable to fully deliver the technology to our clients due to cash flow problems on the client’s side. This resulted in abnormally
high stock levels at year-end but, this will reverse in the present year as funds are made available to our customers as part of
the new budget cycle. It remains key to this division that we continue to invest significantly in our own fully South African
developed IP which has proved popular in the local market and is gaining good traction internationally. Our financial services
business improved profitability by 44% in difficult trading conditions. This was again directly as a result of better customer focus
with our improved service delivery earning a larger share of what was a relatively flat market. The labour supply business
continues to be challenging and we are looking at options to improve the poor return on capital that is being achieved in this
business.

We are confident that we will achieve further growth in profitability in the present financial year despite continued difficult market
conditions. The conclusion of the local government elections will certainly assist in that regard. The outlook for acquisitions
remains constrained as values have not sufficiently dropped in line with the poorer market prospects. We will continue however
to pursue acquisitions where we believe that they can give some earnings benefit in the short term while bolstering our market
position over the longer term.

The operating cash flow was again strong - increasing by 34% to R202.5 million. This is expected to continue albeit in this
financial year there will be a greatly reduced need to reinvest cash in our proprietary IP as the significant investment required
to meet the needs of local government’s mSCOA project was largely completed during the year under review and we have
commenced reaping the benefit of that investment.

The board has elected to increase the cash dividend from 35 cents per share to 43 cents per share in line with our growth in
HEPS.

10. Cash dividend

Notice is hereby given that the directors have declared a final gross cash dividend of 43 cents per share for the financial year
ended 31 March 2016, which is adjusted for withholding tax. The final dividend has not been included as a liability in these
provisional condensed annual consolidated financial statements as it was declared subsequent to year end.

The final dividend for the year ended 31 March 2016 is payable to all shareholders on the Register of Members on Friday,
17 June 2016. In terms of the dividends tax, effective 1 April 2012, the following additional information is disclosed:

- This is a dividend as defined in the Income Tax Act, 1962;

- the local dividend tax rate is 15%;

- the dividends will be payable from income reserves;

- the dividend tax to be withheld by the company amounts to 6.45 cents per share;

- therefore the net dividend payable to shareholders who are not exempt from dividends tax amounts to 36.55 cents per share,
   while the gross dividend payable to shareholders who are exempt from dividends tax amounts to 43 cents per share;

- the issued share capital of the company at the declaration date comprises 114 915 089 ordinary shares; and

- the group´s income tax reference number is 9457/323/84/9.

The salient dates will be as follows:

Declaration date:                Thursday, 26 May 2016

Last day to trade:               Thursday, 9 June 2016

Shares trade ex-dividend:         Friday, 10 June 2016

Record date:                      Friday, 17 June 2016

Payment date:                     Monday, 20 June 2016

Share certificates may not be dematerialised or rematerialised between Friday, 10 June 2016 and Friday, 17 June 2016, both
days inclusive.

By order of the board

26 May 2016

Directors: DC King (Executive Chairman); IG Morris (Chief Executive Officer); RB Dick (Financial Director); DSE Carlisle
(Executive Director); DA Di Siena (Independent Non–Executive Director); PH Duvenhage (Non-Executive Director); TW Hamill
(Non–Executive Director); GE Jacobs (Independent Non–Executive Director); RC Lewin (Non–Executive Director); and D
Passmore (Independent Non-Executive Director)

Company Secretary: RJ Viljoen

Auditors: Nexia SAB&T

Transfer Secretaries: Singular Systems Proprietary Limited

Sponsor: Merchantec Capital
Attorneys: Di Siena Attorneys

Note: No forward looking statements in this announcement have been reviewed or reported on by MICROmega’s auditors.

Date: 26/05/2016 05:23:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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