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Abridged Audited Results for the Year Ended 30 June 2016, Dividend Declaration and Notice of AGM
COGNITION 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”)
ABRIDGED AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2016, DIVIDEND DECLARATION AND NOTICE OF AGM
ABRIDGED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Audited as at 30 Audited as at
Figures in Rands Change June 2016 30 June 2015
Assets
Non-Current Assets
Property, plant and equipment 14.8% 18 035 465 15 715 013
Goodwill 83.4% 30 331 527 16 534 881
Intangible assets 25.6% 14 740 982 11 734 951
Investment in associates -65.3% 4 220 733 12 180 379
Deferred tax asset 307.0% 840 329 206 485
20.9% 68 169 036 56 371 709
Current Assets
Inventories -26.9% 299 862 410 401
Trade and other receivables 30.0% 40 500 311 31 163 376
Cash and cash equivalents -16.4% 79 521 643 95 138 781
-5.0% 120 321 816 126 712 558
Total Assets 3.0% 188 490 852 183 084 267
Equity and Liabilities
Equity
Share capital -0.3% 55 943 920 56 110 451
Change in ownership 100% (6 135 464)
Retained income 1.0% 95 171 136 94 200 852
-3.5% 144 979 592 150 311 303
Non-controlling interest 1 929 129 1 466 421
-3.2% 146 908 721 151 777 724
Liabilities
Non-Current Liabilities
Other financial liability 321.4% 7 022 630 1 666 341
Interest bearing liabilities -27.5% 1 812 530 2 499 293
Deferred tax liability -10.8% 3 434 554 3 851 644
53.0% 12 269 714 8 017 278
Current Liabilities
Current tax payable -83.8% 154 178 950 677
Interest bearing liabilities 53.2% 2 655 183 1 732 963
Trade and other payables 27.2% 24 356 488 19 146 599
Provisions 51.3% 1 996 872 1 320 094
Unclaimed dividends 7.7% 149 696 138 932
25.9% 29 312 417 23 289 265
Total Liabilities 32.8% 41 582 131 31 306 543
Total Equity and Liabilities 2.9% 188 490 852 183 084 267
Net asset value per share (cents) -3.5% 105.42 109.23
Net tangible asset value per share (cents) 18.0% 72.76 88.68
ABRIDGED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
Audited for
Audited for the the year
year ended 30 ended 30
Figures in Rands Change June 2016 June 2015
Revenue 69.5% 173 892 818 102 604 772
Cost of services 127.1% (92 439 342) (40 706 759)
Gross profit 31.6% 81 453 476 61 898 013
Other income 187.7% 2 228 428 774 609
Operating expenses 69.6% (16 524 151) (10 333 581)
Staff costs 125.2% (43 154 405) (18 902 705)
Depreciation and amortisation expense 47.6% (6 485 545) (4 118 013)
Operating profit -40.2% 17 517 803 29 318 323
Investment income -16.2% 5 158 033 6 158 722
Income from equity accounted investments -42.6% 631 405 1 099 386
Finance costs 32.8% (517 897) (390 087)
Profit before taxation -37.0% 22 789 344 36 186 344
Taxation (4 207 383) (9 777 623)
Total comprehensive income for the year -29.6% 18 581 961 26 408 721
Profit for the year attributable to:
Owners of the parent -28.8% 18 226 680 25 606 808
Non- controlling interest 355 281 801 913
-29.6% 18 581 961 26 408 721
Basic earnings per share (cents) -28.9% 13.25 18.63
Diluted earnings per share (cents) -28.9% 13.25 18.63
Headline earnings per share (cents) -28.9% 13.25 18.56
ABRIDGED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Total Equity
Equity attributable to Non-
Figures in Share Share Total change in Retained holders of the controlling
Rands Capital Premium Share ownership income parent interest Total Equity
Balance at 1
July 2014 136 002 52 488 734 52 624 736 85 107 940 137 732 676 - 137 732 676
Total
comprehensive
income for the
year - - - - 25 606 808 25 606 808 801 913 26 408 721
Issue of shares 1 614 3 484 101 3 485 715 - - 3 485 715 - 3 485 715
Non-controlling
interest as a
result of an
acquisition - - - - - - 664 508 664 508
Dividends - - - - (16 513 896) (16 513 896) - (16 513 896)
Total changes 1 614 3 484 101 3 485 715 - 9 092 912 12 578 627 1 466 421 14 045 048
Balance at 1
July 2015 137 616 55 972 835 56 110 451 - 94 200 852 150 311 303 1 466 421 151 777 724
Total
comprehensive
income for the
year - - - - 18 226 680 18 226 680 355 281 18 581 961
Issue of shares (88) (166 443) (166 531) - - (166 531) - (166 531)
Non-controlling
interest as a
result of an
acquisition - - - - - - 4 584 089 4 584 089
Non-controlling
interest as a
result of an
acquisition - - - - - - 407 051 407 051
Dividends - - - - (17 256 396) (17 256 396) - (17 256 396)
Change in
ownership in
subsidiary - - - (6 135 464) - (6 135 464) (4 883 713) (11 019 177)
Total changes (88) (166 443) (166 531) (6 135 464) 970 284 (5 331 711) 462 708 (4 869 003)
Balance at 30
June 2015 137 528 55 806 392 55 943 920 (6 135 464) 95 171 136 144 979 592 1 929 129 146 908 721
ABRIDGED CONSOLIDATED STATEMENT OF CASH FLOWS
Audited for the Audited for the
Figures in Rands Change year ended 30 year ended 30
June 2016 June 2015
Cash flows from operating
activities
Cash generated from
operations 22 704 965 18 609 103
Interest income 5 158 033 6 158 722
Finance costs (260 455) (390 087)
Tax paid (6 495 502) (7 214 970)
Net cash from operating
activities 3.5% 21 107 041 17 162 768
Cash flows from investing
activities
Purchase of property, plant
and equipment (3 659 355) (1 618 115)
Proceeds on disposal of
property, plant and equipment 527 335 166
Purchase of intangible assets (733 548) -
Expenditure on product
development (3 897 297) (4 383 709)
Business combinations 898 839 (13 824 616)
Investments in subsidiary (11 019 176) -
Investments in associates (880 021) (4 514 285)
Net cash from investing
activities -32.5% (19 290 031) (24 005 559)
Cash flows from financing
activities
Buy back of shares (166 531)
Interest bearing liabilities (21 985) (679 001)
Dividends paid (17 245 632) (16 481 521)
Net cash from financing
activities 0.1% (17 434 148) (17 160 522)
Total cash and cash
equivalents movement for (15 617 138) (24 003 313)
the year
Cash and cash equivalents at
the beginning of the year 95 138 781 119 142 094
Total cash and cash
equivalents at end of the
year -16.4% 79 521 643 95 138 781
NOTES TO THE ABRIDGED CONSOLIDATED AUDITED FINANCIAL RESULTS
1. BASIS OF PREPARATION
The Group annual financial statements from which these consolidated audited financial statements were
derived have been prepared on the historical cost basis excluding financial instruments which are accounted
for in terms of IAS39 and conform to International Financial Reporting Standards (“IFRS”) and with the
SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial
Reporting Pronouncements as issued by the Financial Reporting Standards Council. The accounting policies
applied in the preparation of these abridged consolidated audited financial results, which are based on
reasonable judgements and estimates, are in accordance with IFRS, and are consistent with those applied in
the Group annual financial statements for the year ended 30 June 2015. These abridged consolidated
audited statements 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, and the Listings Requirements of JSE
Limited (“JSE”).
These consolidated audited financial statements were prepared under the supervision of the Financial
Director, Pieter Scholtz CA(SA).
Audit Report
The auditors, Grant Thornton Johannesburg Partnership, have issued their unmodified opinion on the
Group’s annual financial statements for the year ended 30 June 2016. The audit was conducted in
accordance with International Standards on Auditing. A copy of the auditor’s report together with a copy of
the audited financial statements are available for inspection at the Company’s registered office. These
abridged financial statements have been derived from the Group’s annual financial statements and are
consistent in all material respects with the Group’s annual financial statements. The contents of this
announcement are extracted from audited information, although the announcement is not itself audited. The
directors of the Group take full responsibility for the preparation of this announcement and confirm that the
financial information has been correctly extracted from the underlying annual financial statements.
2. RECONCILIATION BETWEEN EARNINGS AND HEADLINE EARNINGS
Audited Audited
Figures in Rand year ended year ended
30 June 2016 30 June 2015
The calculation of earnings per share is based on profits of
R18 226 680 attributable to equity holders of the parent
(2015: R25 606 808) and a weighted average of
137 565 088 (2015: 137 448 249) ordinary shares in issue
during the year 13.25 cents 18.63 cents
The calculation of headline earnings per share is based on
profits of R18 226 301 attributable to equity holders of the
parent 2015: R25 504 808) and a weighted average of
137 565 088 (2015: 137 448 249) ordinary shares in issue
during the year 13.25 cents 18.56 cents
Reconciliation between earnings and headline earnings
Profit attributable to ordinary shareholders of parent 18 226 680 25 606 808
Profit on disposal of property, plant and equipment: (527) (141 766)
Tax effect of the disposal of property, plant and equipment 148 39 694
Headline earnings 18 226 301 25 504 736
The calculation of diluted earnings per share is based on
profits of R18 226 301 attributable to equity holders of the
parent (2015: R25 606 808) and 137 565 088
(2015: 137 448 249) ordinary shares issued during the year 13.25 cents 18.63 cents
Reconciliation between earnings and diluted earnings per share:
Weighted average number of shares used in the calculation
of earnings per share 137 565 088 137 448 249
3. SEGMENTAL REPORTING
Segment 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 - a unified messaging system that integrates and delivers a suite of
messaging services through a single hosted platform.
Knowledge Creation and Management - Building permission-based marketing strategies to enhance singular
customer profiles, with deep granularity in line with privacy legislation. Using technology to establish a “new
asset class” by collecting data, adding content and meaning to create information and providing insights,
inferences and experiences to culminate in knowledge.
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”). In the year under review, 4.8% (2015: 4.4%) 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 generate 54.9% (2015: 65.2%) of its revenue through three large
network service providers. Both segments share the use of the Group’s assets and liabilities as well work
within the same operating environment and therefore the Group is not in a position to report on the Assets
and Liabilities nor analyse the operating expenditure separately.
Audited for the year Audited for the
Figures in Rands ended 30 June year ended 30
2016 June 2015
Revenue
Active Data Exchange Services 73 574 486 88 744 297
Knowledge Creation and Management 100 318 332 13 860 485
173 892 818 102 604 782
Cost of sales
Active Data Exchange Services (35 073 504) (37 861 945)
Knowledge Creation and Management (57 365 838) (2 844 814)
(92 439 342) (40 706 759)
Gross Profit
Active Data Exchange Services 38 500 982 50 882 352
Knowledge Creation and Management 42 952 494 11 015 671
81 453 476 61 898 023
4. ACQUISITION OF NEW BUSINESS
On 1 August 2015 the Group acquired an additional 4.68% of the shares in BMi Research Proprietary
Limited. This resulted in Cognition being the largest shareholder of BMi Proprietary Limited and enabled
Cognition to control the Board of BMi Research Proprietary Limited. The combined purchase price at the
time of obtaining control was R8 670 000. Should the business achieve certain targets, an additional
purchase consideration will be payable of no more than R9 623 680. The acquired business contributed
revenues totalling R40 202 634 and net profit after tax to the value of R3 500 545. If the business was
acquired on 1 July 2015, the revenue and profit after tax would have been R43 026 358 and R3 192 848
respectively.
The assets and liabilities as at 1 August 2015 arising from the acquisition were:
1 August 2015
Non-current assets 1 196 888
Current assets 8 895 079
Current liabilities (3 430 757)
Net assets acquired 6 661 210
Non-controlling interest (4 584 099)
Goodwill 14 489 731
Interest held prior to acquisition (8 874 212)
Contingent consideration (7 022 630)
Cash balances acquired (1 568 839)
Net cash received (898 839)
Purchase of additional 60.30% of BMi Research Propriety Limited
The group purchased the remaining shares in BMi Research on 1 December 2015 for a cash consideration
of R11 019 176. This transaction was accounted for as a common control acquisition in terms of IFRS 3. The
excess of the consideration paid over the fair value of the assets has been recognised in equity as Equity
due to change in ownership to the value of R6 135 464.
COMMENTARY
The board of directors of Cognition (“the Board”) are proud to announce their results for the year ended
30 June 2016.
NATURE OF THE BUSINESS
The Group’s products and services are all orientated around customer-centricity and assisting our clients,
who are typically large corporations, to achieve a paradigm shift by forming long-term partnerships with their
customers to achieve enhanced benefits for both parties.
FINANCIAL PERFORMANCE
The Group’s revenue has grown to a record high of R173.9 million representing a 69.5% increase in
earnings compared to R102.6 million last year. The increase can be attributed to the growth within the
Knowledge Creation and Management, primarily as a result of the Group expanding its product offering to
include the channel incentive programmes, data analytics and improved research skills from the acquisitions
made during the past 18 months. These acquisitions contributed 31.2% (R54 million) of the Group’s revenue
during the year under review.
Active data exchange services recorded a 17% decline in sales from R88.7 million to R73.6 million. This
decline can be attributed to the reduced revenue earned from Fax2Email services. We are in the process of
introducing new products within this division that will hopefully offset any future declines. Despite this
decline, the division is still extremely cash generative as the earnings are achieved with minimal direct
operational costs and minimal human resources.
Gross profit across the Group increased from R61.9 million in the previous year to R81.5 million for the year
under review. Gross profit margin decreased from 60.3% to 46.8% this year due to the introduction of new
product offerings and the acquisitions made.
The Group’s strategy to develop new innovative product offerings and to grow through acquisitions has
resulted in increased staff costs from R18.9 million in the previous year to R43.2 million in this year, a
128.6% increase. The bulk of this cost is due to the additional headcount via our acquisitions made. Staff
cost is by the far the Group’s biggest expenditure and accounts for 65.3% of operating expenditure
compared to the prior year where it only accounted for 56.75% of operating expenditure. The Group’s
average head count for the year under review increased by 83% from 88 staff to 161 staff. As at
30 June 2016 the Group employed 166 staff. Operating expenditure increased from R10.3 million to
R16.5 million, a 60.2% increase again due to the acquisitions made.
The resulting earnings before interest, taxation, depreciation and amortisation (“EBITDA”) decreased by
29.6% to R23.5 million (2015: R33.4 million). Based on the weighted average number of shares in issue,
earnings per share (“EPS”) decreased by 28.9% to 13.25 cents from 18.63 cents in relation to the previous
corresponding period. Headline earning per share (“HEPS”) decreased by 29.1% to 13.20 cents from
18.63 cents.
Profit before tax decreased by 36.8% to R22.8 million (2015: R36.1 million) and net profit for the year under
review decreased to R18.6 million (2015: R26.4 million), reflecting a 29.5% decrease.
Statement of Financial Position
In the past the Group always reported on the strategic importance to build up the necessary cash reserves.
During the year under review these reserves have enabled the Group to make value-enhancing acquisitions,
invest in internal projects, have adequate working capital to expand organically, and have the ability to
weather tough economic conditions while maintaining a good dividend flow to shareholders.
The Group acquired the remaining 65% shareholding in BMi Research Proprietary Limited and furthermore
invested in internal projects to the value of R3.8 million for the past year (2015: R4.3 million) as well as a
R3.4 million investment in assets (2015: R1.6million)
The net asset value of the Group remained stable despite distributing a significant dividend to shareholders
of R16.5 million during the year under review. The net result is that the net asset value of the Group
decreased slightly by 3.5% from 109.2 cents per share to 105.4 cents per share.
The Group’s working capital requirements increased during the year under review due to the acquisitions
made, as well as the channel incentive reward programmes launched. Despite this increase in working
capital requirements, the Group still has a very healthy statement of financial position, with a debt equity ratio
of 28.6% (2015: 20.1%) and liquidity ratio of 4.5 times (2015: 5.8 times).
Cash movements
Net cash generated from operations increased by 32% from R17.2 million to R22.7 million. This is again
testimony to the cash generative nature of the Group’s business. Cash deployed in investing activities
amounted to R16.2 million during the year under review compared to R24 million in the previous year. The
bulk of this was used in acquisitions and, investing in both infrastructure assets and internally generated
assets.
Further to this, the Group declared and paid a cash dividend of R16.6 million (12 cents per share) to its
shareholders. The net effect of this is that the Group’s cash holdings reduced from R95 million to R79 million
during the year under review.
Equity movements
During the year under review, the Group acquired 88 139 treasury shares. The Group also acquired
additional shares in one of its subsidiaries resulting in a change of ownership charge of R6.1 million
accounted for in the statement of equity. There were no share issues or share premium movements.
Going Concern
The Board has formally considered the going concern assertion for the year going forward and is of the
opinion that it is appropriate.
Conclusion
The Cognition Group made key investments during the period under review while maintaining a healthy
financial position even in tough economic times. It is the view of the executives that the Group will benefit
tremendously during the forthcoming years from these investments.
OPERATIONAL PERFORMANCE
Group Profile
Cognition is an information, communication and technology company (“ICT”) that provides a broad range of
bespoke services to media companies, fast moving consumer goods organisations and above, below and
through the line digital agencies. In addition, the Group provides consulting, research, data management and
knowledge creation and management.
Cognition is committed to fair and sustainable business practices and strict adherence to regulatory and
legislative requirements and frameworks.
Cognition operates via two distinct strategic objectives, being:
- Active data exchange services; and
- Knowledge creation and management.
These objectives are underpinned by our Six Pillar Strategy.
Cognition operates from its head office in Randburg and satellite offices in Cape Town and Durban. The
Group strategy is underpinned by a high value system which encourages innovation, performance and a
strong client-centric philosophy. The Group prides itself in being able to develop bespoke services to meet
the client’s specific needs.
Cognition has recognised the growing international trend of consumers realising:
- their right to have their privacy respected;
- the value of their personal data (an “asset class”); and
- the need to be in control when sharing data.
Operational Performance
During the year under review, with the exception of faxing services, the Group performed well in difficult
trading conditions. We maintained a very healthy financial position and cash on hand of R79.5 million.
The Group achieved a total comprehensive income for the year of R18.6 million. This was regrettably down
on the previous year (R26.4 million) primarily due to the decline in faxing revenue. Net cash and equivalents
amounted to R79.5 million after we had acquired the remaining 60.30% of BMi Research Proprietary Limited
and paid a dividend of 12 cents per share. The Group remains largely ungeared and has the capacity to take
on significant debt should we entertain further acquisitions.
We have previously notified shareholders that faxing services have been in decline, however the rate of
decline during the period under review, was higher than anticipated. As a Group, we are conscious of the
need to identify new concepts, ideas and technologies so that they can be commercialised and put into a
business context, particularly as previous technologies age.
New technologies constantly disrupt older technologies, (in our context faxing services), and accordingly our
approach is to ensure that we have a culture of learning and innovation to introduce emerging future
technologies to realise our, as well as our clients’, business goals and objectives. In line with this, the Group
has developed and launched its Knowledge 350° service offering which is beginning to gain momentum in
the marketplace. In the period under review, we have conceptualised, designed and are developing two new
innovative, future-orientated services called Secure Document Exchange (“SecurDox”) and mibubble, a
personal Information Management System (“PIMS”) for data sharing.
The Group’s service offering falls into two channels: Active Data Exchange Services and Knowledge
Creation and Management. Through these two channels, the Group’s mission is to provide all our clients
with the ability to gain greater insights about their customers. We achieve this by using two data collection
strategies, being "Pull" and "Push" methodologies. Both these strategies are built into the fabric of our Six
Pillar Strategy.
Active Data Exchange Services
Document Management ("DM")
DM incorporates Fax2Email and Email2Fax. The former has shown a consistent decline in the last 24
months as the technology, as a methodology of document exchange, ages. Despite this there are still over
300,000 subscribers to the service; however the average rate per user ("ARPU") has declined which
indicates that the size of documents being transmitted is smaller. Although this trend will no doubt continue,
it still remains good annuity income and a fully automated service requiring minimal human resource.
In contrast with Fax2Email, Email2Fax (which allows a user to send a document from a PC to a fax machine)
continues to show positive growth of around 6% year on year, albeit off a smaller base.
Cognisant of the decline in faxing, the Group has been developing an exciting new generation document
exchange service using Blockchain encryption and secure UMA transfer standards. This service, anticipated
to launch around the last quarter of 2016, will be marketed to our current and historical faxing database of
potential subscribers. It will operate as a business-to-business ("B2B") and business-to-consumer ("B2C")
offering and it will operate on a pre-paid annuity model. This service will target industries that require secure
and authenticated transfer of documents such as: legal, financial, medical and brokerage industries.
We anticipate that this offering will negate the decline in our current faxing services and in time, exceed
historical faxing revenues.
Call2Action
These services incorporate our traditional services offered by the Group over the last 20 years. They include:
SMS, IVR, IM, USSD and email services. We have three clearly defined service offerings and markets:
Media Infotainment
This incorporates well-known campaigns such as Big Brother Africa, The Voice, Strictly Come Dancing and
the like. Our objective in this environment is to provide a technical gateway to enable viewers to vote or enter
promotional activities. Although we collect huge amounts of data, it is typically limited in depth and used
mainly for observational purposes.
Retail Promotions
This entails the use of collecting limited demographic and psychographic data on behalf of our clients using
promotional services. This is a classic Pull strategy to build a database over an extended period of time.
Whilst the primary focus is still brand awareness and exposure, data is collected, analysed and basic
insights given to clients. Retail promotions offer the early stages of building brand-specific ecosystems.
Data Investment
This strategy has a deliberate objective of collecting specific consumer data with a view to building large
databases. Whilst competitions or promotions are still used as the consumer "Call2Action", the end game is
to build a granular profile of individual customers with significant depth
We have made very positive inroads in all three of these service offerings. Media Infotainment is offered in
32 countries and with 90 mobile networks throughout Africa . We have become the service provider of first
choice for a number of big brands that wish to offer services in Africa.
To enhance our Call2Action services, we will be increasing our sales force in 2016/2017 to grow our client
base, as we have found our existing sales capacity is spending more time on existing clients with repeat
business being the order of the day. Our strategy going forward is to increase the base of clients and to
diversify into different sectors beyond our traditional FMCG environment.
Knowledge Creation and Management
Knowledge 350° ("K350°")
K350° is a fifteen step proprietary process that provides our clients with a roadmap in understanding their
customers, collecting data in compliance with POPI and building consumer-centric services. K350° also
embraces classic pull data methodologies, yet provides for a focused and procedural approach to data
collection, storage and management.
Whilst the concept of “big data” has become a challenge for business, particularly due to the digital economy
and the Internet of Things (“IoT”), K350° is focused on the quality of data rather than the volume of data. By
focusing on the quality of data we enable clients to effectively use their data to:
- better understand the customers’ demographics, psychographics and ethnographics;
- self-create intangible assets - personal data is becoming an important asset class;
- minimise costs;
- become compliant with privacy regulation; and
- monetise data.
During the year under review the Group has successfully completed the building of a K350° data warehouse,
which is overlaid with a business evaluation tool (“BI tool”) using Microstrategy software.
This software enables our clients who have collected personal consumer data via the K350° process, to:
- Build insightful dashboards;
- Get the most from the data through visualisation; and
- Generate meaningful reports.
K350° encourages clients to build a ‘single source of truth’ database by consolidating disparate sources of
data into one manageable environment for analysis.
Incentive & Loyalty
Incentive and loyalty services are part of the Group’s pull strategy for data collection. This division provides
services to reward agents/employees, customers or business owners.
Agents / Employees
The Group has developed its own proprietary platform for agent/employee channel incentives. Our first
client, being a large mobile phone supplier, used the platform to reward agents selling its products at the
retail level. We successfully deployed over 7 000 cards into the retail channel, and within 10 months paid
rewards to the cardholders in excess of R30 million. The Group’s strategy going forward is to deploy similar
channel incentives to different sectors wanting to drive sales and incentivise agents or employees.
Customers / Businesses
The Group offers card-based or app-driven loyalty programmes for retailers to reward consumers for loyal
shopping patterns. The underlying technology enables us to collect transactional data and align this date to
our K350° database, providing our clients with more insights about their customers’ shopping behaviour.
Other customer incentives include the provision of Instant Messaging (“IM”) platforms to enable customers of
a client to communicate with each other. The Group currently hosts the largest IM community in South Africa
for a large retail chain comprising over 4.8 million users.
The strategy is to increase the number of clients using our proprietary channel incentive programmes.
mibubble
Local and international trends and research indicate that consumers are becoming increasingly concerned
about the amount and depth of personal information that businesses collect about them and they are
simultaneously becoming aware their personal information has value and is becoming an “asset class”.
Historically the balance of power rested with businesses, however this is now progressively tipping in favour
of consumers.
Businesses need to undergo a paradigm shift and manage partnerships with their customers to ensure
continuing access to rich information and embrace new mechanisms for engagement.
mibubble provides the Group’s clients with such a mechanism in the form of a Personal Information
Management System (“PIMS”).
mibubble is positioned to become an infomediary or “fourth party” and will act as a custodian for consumers’
data, enabling them to securely push their personal data to businesses of their choice in exchange for value.
The Group has conceptualised, designed and is building a multi-faceted PIMS platform for launch during the
fourth quarter of 2016. mibubble will launch with thirteen modules offering benefits for every demographic
and psychographic segment in South Africa and abroad.
The PIMS platform is designed for deployment in any country, and to this end we have opened a branch
office in Dubai in order to seek out opportunities in the region. In addition, we have formed partnership
agreements as well as formed physical presences in Portugal, the United Kingdom and Kenya for the
deployment of mibubble platforms.
Privacy legislation and regulation is one of the factors driving consumers’ desire to have more control in the
management of their personal data.
We accordingly believe the mibubble PIMS platforms will provide excellent scope in the European Union,
particularly as the General Data Protection Regulation (“GDPR”) was adopted by the European Parliament in
early 2016 and will come into full force in May 2018.
South African privacy legislation, driven primarily by POPI, will be influenced by the GDPR, and we are
positioning mibubble to take advantage of these opportunities.
mibubble will place Cognition as an intermediary between the supply chain (suppliers / retailers) and
consumers and will open up a new revenue channel for the Group.
mibubble is at the cutting edge of the new sharing economy and will offer both businesses and consumers a
platform (mibubble) to establish true partnerships, beneficial to both parties.
The mibubble platform will also enable the Group to engage in new disciplines such as: Gamification and
Beacons.
mibubble will offer what we refer to as a “triple play”, comprising a virtual database (“PIMS”), a gamification
module for interaction with various brands and their products and beacon interaction at a physical level
within stores, all interacting with the PIMS platform.
All of these interactions open up new and exciting revenue streams for the Group.
BMi Research Proprietary Limited
During the year under review, the Group acquired the remaining 60.30% of BMi Research Proprietary
Limited (“BMi Research”). BMi Research continues to operate from its offices in Bedfordview under the
leadership of Gareth Pearson, the Chief Executive Officer. Gareth and his well-focussed team have
continued to build an exceptionally strong research and insights business that offers multi-disciplinary
solutions beyond the traditional research company.
BMi Research is producing stellar growth, particularly in the areas of annual quantification, commissioned
and consumer behaviour and insights.
Livingfacts Proprietary Limited
During the same period, the Group acquired an additional 4% in Livingfacts Proprietary Limited
(“Livingfacts”) from a shareholder who exited the business, thus taking the Group’s shareholding in
Livingfacts to 48%.
Livingfacts performed well during the review period under the professional leadership of the CEO, Marylou
Kneale and her team. A new and innovative website was re-launched, reflecting the depth of services offered
via their research platforms incorporating: qualitative, quantitative, desk research and secondary data
analysis.
BMi Sport Info Proprietary Limited
In March 2016 Johan Grobler, the original founder and CEO of BMI Sport Info Proprietary Limited (“BMi
Sport”), retired and he was succeeded by Dave Sidenberg as the CEO. Walter Grobler, the IT director, also
left to pursue personal interests. We would like to thank Johan and Walter Grobler for their contribution and
loyalty to BMi Sport. Dave has been with BMi Sport for the last twelve years.
BMi Sport Group offers a range of innovative products all aimed at maximising clients’ strategic insights,
which include: Sporttrack, Sportscope, Music, Arts and Culture Track, Sponsortrack, Mediatrack, Eventtrack
and X-track. BMi Sport Group has moved into Cognition’s premises and the Group is in the process of
evaluating synergies, efficiencies and the streamlining of operations, to extract better value and enhance
earnings.
Future Prospects
With the decline in faxing revenue, we are re-shaping the Group by:
- introducing SecurDox to restore the revenue lost and introduce an additional annuity channel for the
Group. Based on our research conducted with a representative sample of our target market, we
believe the uptake should be positive. In addition, early interest has been shown for SecurDox in a
number of African countries.
- launching mibubble, our PIMS platform, which is at the cutting edge of innovation, both in South
Africa and the rest of the world. We believe our timing for the launch of this product is in line with the
introduction of increasing privacy regulations such as POPI and the GDPR, coupled with the
consumers’ demands to be more in control of their personal data details and to receive an exchange
of value for sharing data. We are very excited that mibubble, being the Group’s proprietary platform,
can be deployed across the globe and for the first time enables the Group to externalise a product to
earn foreign currency.
Our Six Pillar Strategy will be the Group’s focus over the next few years with clear and defined objectives.
Cognition prides itself with a history of innovation and the capacity to adapt to changing markets especially in
the digital age, which requires rapid experimentation, investment in talent, agility and collaboration.
BMi Research, BMi Sport and Livingfacts continue to perform and make positive inroads in their respective
markets, each of which have positive growth opportunities.
Investment Opportunities
We continue to evaluate a number of possible investments that will complement the five operational pillars in
our Six Pillar Strategy. Two possible opportunities have been shortlisted for further evaluation in the current
financial year, and shareholders will be kept updated with progress in this regard via press and SENS
announcements.
My Appreciation
On behalf of Cognition, I remain thankful to the members of the Board for their valuable input and
contribution to the growth of the Group as well as to all our staff for their hard work, loyalty and contribution
to the execution of our strategy.
I would also like to extend my thanks to the leadership of BMi Research, Livingfacts and BMi Sport for their
contribution to our collective strategy, and lastly, but importantly, to all our network suppliers, dealers,
partners, customers and all stakeholders.
AUDIT REPORT
The annual financial statements for the year ended 30 June 2016 have been audited by Grant Thornton
Johannesburg Partnership, the Company’s auditors. Their unmodified audit report is available for inspection
at Cognition’s registered office during office hours.
CORPORATE GOVERNANCE
The Board recognises the need to conduct the affairs of the Group with integrity and in compliance with the
principles of the King Report on Governance Principles of South Africa (“King III report”). Throughout the
year under review the Group has complied with the principles as set out in the King III report except for the
following:
Composition of the Board
During the year the Board’s composition comprised of six non-executive directors (four independent) and
three executive directors with such composition remaining unchanged during the year under review.
Composition of the Audit Committee
During the year under review the Audit and Risk Committee consisted of three independent non-executive
directors.
FINAL DIVIDEND DECLARATION
Notice is hereby given that the directors have declared a gross final dividend of 8 cents for the financial year
ended 30 June 2016 (2015: 12 cents per share), which is adjusted for withholding tax. The final dividend has
not been included as a liability in these audited financial statements as it was declared subsequent to year
end. The final dividend for June 2016 is payable to all shareholders on the Register of Members on Friday,
21 October 2016. In terms of the dividends tax, effective 1 April 2012, the following additional information is
disclosed:
- 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 1.2 cents per share;
- therefore the net dividend payable to shareholders who are not exempt from dividends tax amounts to
6.8 cents per share, while the gross dividend payable to shareholders who are exempt from dividend
tax amounts to 8 cents per share;
- the issued share capital of the Company at the declaration date comprises 137 615 798 ordinary
shares; and
- the Group’s income tax reference number is 9087/450/84/8.
Declaration date: Tuesday, 27 September 2016
Last day to trade cum the dividend Tuesday, 18 October 2016
Date trading commences ex the dividend Wednesday, 19 October 2016
Record date Friday, 21 October 2016
Date of payment Monday, 24 October 2016
Share certificates may not be dematerialised or rematerialised between Wednesday, 19 October 2016 and
Friday, 21 October 2016, both dates inclusive.
ANNUAL REPORT
Shareholders are advised that the Annual report has been distributed to shareholders today and is also
available on the company website at www.cgn.co.za.
NOTICE OF AGM
Notice is hereby given that the 18th Annual General Meeting (“Annual General Meeting”) of shareholders of
Cognition will be held at 10:00 on Thursday, 1 December 2016 at Cognition House, Corner Bram Fischer
Drive and Will Scarlet Road, Ferndale Randburg (entrance on Will Scarlet Road) for the purpose of
considering, and, if deemed fit, passing, with or without modification, the resolutions set out hereafter.
The board of directors of the Company (“the Board”) has determined that, in terms of section 62(3)(a), as
read with section 59 of the Companies Act, 2008 (Act 71 of 2008), as amended, the record date for the
purposes of determining which shareholders of the Company are entitled to participate in and vote at the
Annual General Meeting is Friday, 25 November 2016. Accordingly, the last day to trade Cognition shares in
order to be recorded in the Register to be entitled to vote will be Tuesday, 22 November 2016.
For and on behalf of the Board
Ashvin Mancha Mark Smith Pieter Scholtz
Chairman Chief Executive Officer Financial Director
Johannesburg
27 September 2016
Business and Registered Office:
Cognition House
Corner of Bram Fischer Drive and Will Scarlet Road
Ferndale, Randburg, 2194
PO Box 3386, Pinegowrie, 2123
Telephone +27-11-293-0000
Fax 086-610-1000 / +27-11-787-2137
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
Company Secretary: Stefan Kleynhans BA BIuris LLB LLM (Banking Law)/ (Corporate Law)
Auditors: Grant Thornton Johannesburg Partnership
Transfer Secretaries: Computershare Investor Services Proprietary Limited
Sponsor: Merchantec Capital
Date: 27/09/2016 04:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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