MICROMEGA HOLDINGS LIMITED - Provisional Condensed Annual Consolidated Results for the Year Ended 31 March 2018

Release Date: 28/06/2018 17:25
Code(s): MMG
 
Wrap Text
Provisional Condensed Annual Consolidated Results for the Year Ended 31 March 2018

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 CONDENSED ANNUAL CONSOLIDATED RESULTS FOR THE YEAR ENDED 31 MARCH 2018

 CONDENSED GROUP STATEMENT OF PROFIT AND LOSS

                                                                        Audited          Audited
                                                                      12 months        12 months
                                                                          ended            ended*
                                                                       31 March         31 March
                                                                           2018             2017
                                                                          R’000            R’000
 Continuing operations
 Revenue                                                                797 957         808 176
 Cost of sales                                                        (354 790)       (418 029)
 Gross profit                                                           443 167         390 147
 Other net income                                                        41 349           6 824
 Distribution expenses                                                  (4 489)         (2 659)
 Administration expenses                                              (344 033)       (267 871)
 Profit from operations                                                 135 994         126 441
 Finance income                                                           2 073           1 816
 Finance cost                                                           (8 210)         (3 325)
 Share of profit of equity accounted associate                            1 271           1 902
 Profit before tax                                                      131 128         126 834
 Tax expense                                                           (37 269)        (30 781)
 Profit for the year from continuing operations                          93 859          96 053
 Profit for the year from discontinued operations                        95 989         119 120
 Profit for the year                                                    189 848         215 173



 Profit attributable to:
 Owners of the parent - continuing                                      83 795          61 459
 Owners of the parent - discontinued                                    92 656         115 377
 Non-controlling interest – continuing                                  10 064          15 023
 Non-controlling interest - discontinued                                 3 333          23 314
                                                                       189 848         215 173
 Attributable earnings per share (cents)
 Basic                                                                  154.50          155.59
 Continuing operations                                                   73.37           54.08
 Discontinued operations                                                 81.13          101.51
 Diluted basic                                                          154.04          154.58
 Continuing operations                                                   73.15           53.73
 Discontinued operations                                                 80.89          100.85
 Headline                                                               153.26          157.76
 Continuing operations                                                   72.13           56.31
 Discontinued operations                                                 81.13          101.45
 Diluted headline                                                       152.80          156.74
 Continuing operations                                                   71.91           55.94
 Discontinued operations                                                 80.89          100.80

*The comparative periods included in the statement of profit and loss have been re-presented to align the disclosure with the requirements of IFRS5 on
discontinued operations.


CONDENSED GROUP STATEMENT OF OTHER COMPREHENSIVE INCOME

                                                                                                                         Audited                 Audited
                                                                                                                       12 months               12 months
                                                                                                                           ended                   ended
                                                                                                                        31 March                31 March
                                                                                                                            2018                    2017
                                                                                                                           R’000                   R’000

Profit for the year                                                                                                       189 848                 215 173
Other comprehensive income:
Foreign currency translation differences                                                                                    1 502                 (5 667)
Disposal of subsidiaries                                                                                                   (1 730)                      -
                                                                                                                          189 620                 209 506

Total comprehensive income attributable to:
Owners of the parent                                                                                                      176 223                 171 169
Non-controlling interest                                                                                                   13 397                  38 337
                                                                                                                          189 620                 209 506

Reconciliation of headline earnings (net of tax) for
continuing operations:
Profit attributable to owners of the parent                                                                                83 795                  61 459
Profit on disposal of property, plant and equipment                                                                         (443)                  (1 371)
Loss/(profit) on disposal of investment in subsidiaries                                                                     (977)                   3 906
Headline earnings                                                                                                          82 375                  63 994

Reconciliation of headline earnings (net of tax) for
discontinued operations:
Profit attributable to owners of the parent                                                                                92 656                 115 377
Loss/(profit) on disposal of property, plant and equipment                                                                      5                    (69)
Loss/(profit) on disposal of investment in subsidiaries                                                                         -                       -
Headline earnings                                                                                                          92 661                 115 308

Weighted average number of shares (000s)                                                                                  114 209                 113 656
Diluted weighted average number of shares (000s)                                                                          114 549                 114 394
Total number of shares in issue (000s)                                                                                    114 597                 114 211



CONDENSED GROUP STATEMENT OF FINANCIAL POSITION

                                                             Audited     Audited
                                                               As at       As at
                                                            31 March    31 March
                                                                2018        2017
                                                               R’000       R’000
ASSETS
Non-current assets                                           664 702     838 151
Property, plant and equipment                                 36 245      59 677
Intangible assets                                            560 104     735 664
Investments in associates                                     17 806      15 550
Other financial assets                                        25 000           -
Deferred tax assets                                           25 547      27 260

Current assets                                               434 417     516 433
Inventories                                                   53 114      44 777
Trade and other receivables                                  295 571     409 018
Income tax receivable                                          6 335       5 806
Other financial assets                                        39 777       6 288
Cash and cash equivalents                                     39 620      50 544

Assets held for sale                                         501 463           -

TOTAL ASSETS                                                1 600 582  1 354 584

EQUITY AND LIABILITIES
EQUITY                                                      1 051 449    948 790
Share capital and share premium                               295 937    292 452
Other reserves                                                  7 114      6 909
Retained earnings                                             650 059    534 917
Non-controlling interest                                       98 339    114 512

LIABILITIES
Non-current liabilities                                       77 449     103 378
Other financial liabilities                                    1 745       4 359
Deferred vendor payments                                       8 566       7 126
Deferred tax liabilities                                      67 138      91 893

Current liabilities                                          344 145     302 416
Trade and other payables                                     177 255     202 016
Other financial liabilities                                   35 320       2 795
Income tax payable                                             6 271       6 397
Deferred vendor payments                                       6 571      32 644
Bank overdraft                                               118 728      58 564

Liabilities directly associated with assets held for sale    127 539           -

TOTAL LIABILITIES                                            549 133     405 794

TOTAL EQUITY AND LIABILITIES                               1 600 582   1 354 584

Net asset value per share (cents)                             831.71      730.47
Net tangible asset value per share (cents)                    342.95       86.34
CONDENSED GROUP STATEMENT OF CASH FLOW
 
                                                                                            Audited             Audited
                                                                                          12 months           12 months
                                                                                              ended               ended
                                                                                           31 March            31 March
                                                                                               2018                2017
                                                                                              R’000               R’000
Cash flow from operating activities                                                         234 876             187 477
Cash generated from operations                                                              261 541             216 994
Finance income                                                                                1 968               2 140
Finance costs                                                                                  (324)             (1 475)
Income tax paid                                                                             (28 309)            (30 182)

Cash flow from investing activities                                                        (225 935)           (165 278)
Property, plant and equipment acquired                                                      (42 506)            (19 938)
Intangible assets acquired                                                                 (168 919)           (158 197)
Proceeds on disposal of property, plant and equipment                                         2 120               3 918
Acquisition of subsidiaries and businesses                                                   (4 376)             (6 750)
Acquisition of non-controlling interest without a change in control                               -              (2 128)
Cash (forfeited)/received on disposal of subsidiaries and businesses                        (13 765)             17 018
Loans receivable repaid                                                                       1 511                 799

Cash flow from financing activities                                                         (60 972)            (70 109)
Treasury shares repurchased                                                                    (544)            (10 841)
Other financial liabilities repaid                                                           (4 625)             (5 035)
Other financial liabilities raised                                                           31 960                   -
Deferred vendor payments repaid                                                             (19 497)             (1 607)
Dividends paid to non-controlling interest                                                   (5 332)             (3 139)
Dividends paid                                                                              (62 934)            (49 487)



(Decrease)\Increase in cash and cash equivalents                                              (52 031)         (47 910)
Cash and cash equivalents included in assets held for sale                                    (19 057)                -
Cash and cash equivalents at the beginning of the year                                         (8 020)           39 890
Cash and cash equivalents at the end of the year                                              (79 108)          (8 020)


CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY




                                                           Share          Other   Retained            Non-         TOTAL
                                                      Capital and      Reserves   Earnings     Controlling
                                                           Share                                  Interest
                                                        Premium
                                                           R’000          R’000      R’000          R’000           R’000

Balance at 1 April 2016                                   266 852        12 333    411 651         75 672        766 508
Profit for the year                                             -             -    176 836         38 337        215 173
Other comprehensive income
 Foreign currency translation differences                       -        (5 667)         -              -         (5 667)
 Transactions with owners, recorded directly in
 equity
 Dividends paid                                                 -              -   (49 487)        (3 139)       (52 626)
 Treasury shares purchased                                (10 841)             -         -              -        (10 841)
 Share-based payment transactions                           2 834            243     1 770              -          4 847
 Acquisition of subsidiaries                               33 607              -         -              -         33 607
 Changes in ownership interest in subsidiaries                  -              -    (5 853)         3 642         (2 211)
 without a change in control
 Balance at 31 March 2017                                 292 452          6 909   534 917        114 512        948 790

 Balance at 1 April 2017                                  292 452          6 909   534 917        114 512        948 790
 Profit for the year                                            -              -   176 451         13 397        189 848
 Other comprehensive income
 Foreign currency translation differences                       -          1 502         -              -          1 502
 Transactions with owners, recorded directly in
 equity
 Dividends paid                                                                     (62 934)       (5 332)       (68 266)
 Share-based payment transactions                           4 023            433      1 625             -          6 081
 Disposal of subsidiaries                                       -         (1 730)         -       (24 238)       (25 968)
 Treasury shares purchased                                   (538)             -          -             -           (538)
 Balance at 31 March 2018                                 295 937          7 114    650 059        98 339      1 051 449



NOTES TO THE GROUP FINANCIAL INFORMATION

1. Basis of preparation
These provisional condensed annual consolidated financial statements for the year ended 31 March 2018 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 condensed annual consolidated financial statements 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 fair value of financial instruments approximates their carrying value. The provisional condensed
annual consolidated financial statements have been prepared under the supervision of Cornelia Kemp, CA (SA), the Financial
Director.

The provisional condensed annual consolidated financial statements are extracted from the audited annual consolidated
financial statements and are consistent in all material respects with the group financial statements which are available for
inspection at the company’s registered office. This provisional report is extracted from audited financial information but is not
itself audited.

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 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 2017.
3. Audit opinion
The annual consolidated financial statements were audited by the group’s auditors, Nexia SAB&T, and their unmodified audit
report is available for inspection at the group’s registered office.

4. Business combinations
IPES-Utility Management Systems Proprietary Limited (“UMS”)
On 1 April 2017, the group acquired UMS for a consideration of R31.9 million. Goodwill to the value of R25.7 million was
accounted for. The amount of net assets acquired amounted to R6.2 million.

5. Disposal of subsidiaries
Profit Reform Proprietary Limited (“COID Support”)
On 1 August 2017, the group disposed of its 51% interest in COID Support for a consideration of R2.2 million, which resulted
in a loss of control of COID Support. This event resulted in the derecognition of goodwill to the value of R4.3million and other
net assets of R1.5million, which is included in the loss on disposal of R3.6 million.


The Training Room Online Proprietary Limited and The Training Room Online Global Limited (“TTRO”)
On 1 April 2017, the group disposed of its 31% interest in TTRO for a consideration of R25.0 million, which resulted in a loss
of control of TTRO. This resulted in the re-measurement of the deferred vendor payments to the value of R24.8 million and a
profit on disposal of R5.0 million recorded in profit and loss.


6. Discontinued operations
NOSA Group - Testing inspection and certification services segment
On 13 October 2017 the group announced the proposed disposal of NOSA Group for an aggregate cash consideration up to
R747.8 million. The group treated these operations in accordance with IFRS 5. The following table details the results of these
discontinued operations included in the group statement of profit and loss.
 
                                                                                                         Audited              Audited
                                                                                                       12 months            12 months
                                                                                                           ended                ended
                                                                                                        31 March             31 March
                                                                                                            2018                 2017
                                                                                                           R’000                R’000

 Revenue                                                                                                  490 979               439 304
 Cost of sales                                                                                          (200 645)             (185 845)
 Gross profit                                                                                             290 334               253 459
 Other net income/(expenses)                                                                                2 399                 (175)
 Distribution expenses                                                                                     (3 100)              (2 675)
 Administration expenses                                                                                 (177 247)            (146 586)
 Results from operations                                                                                  112 386               104 023
 Finance income                                                                                               787                   312
 Finance cost                                                                                                (543)                (186)
 Profit before tax                                                                                        112 630               104 149
 Tax expense                                                                                              (16 641)             (24 971)
 Profit from discontinued operations                                                                       95 989                79 178

 Profit from discontinued operations attributable to:
 Owners of the parent                                                                                      92 656                  75 435
 Non-controlling interest                                                                                   3 333                   3 743
                                                                                                           95 989                  79 178


The following table details the assets and liabilities classified as held for sale in the group statement of financial position.

                                                                                                                       Reviewed
                                                                                                                          As at
                                                                                                                       31 March
                                                                                                                           2018
                                                                                                                          R’000
 ASSETS
 Property, plant and equipment                                                                                            45 636
 Intangible assets                                                                                                       324 407
 Deferred tax assets                                                                                                           -
 Inventories                                                                                                               3 273
 Trade and other receivables                                                                                             109 090
 Cash and cash equivalents                                                                                                19 057
 TOTAL ASSETS                                                                                                            501 463

 LIABILITIES
 Deferred vendor payments                                                                                                (4 100)
 Deferred tax liabilities                                                                                               (45 445)
 Trade and other payables                                                                                               (76 576)
 Income tax payable                                                                                                      (1 414)
 TOTAL LIABILITIES                                                                                                     (127 535)

 NET ASSETS                                                                                                              373 928

The following table details the cash flow of the discontinued operations included in the group cash flow statement.

                                                                                                    Audited             Audited
                                                                                                  12 months           12 months
                                                                                                      ended               ended
                                                                                                   31 March            31 March
                                                                                                       2018                2017
                                                                                                      R’000               R’000

 Cash flow from operating activities                                                                116 057              47 216
 Cash flow from investing activities                                                                (39 450)            (29 688)
 Cash flow from financing activities                                                                (22 542)             (6 353)


The Training Room Online - Testing inspection and certification services segment
The group disposed of 31% of its interest in The Training Room Online on 1 April. The group treated these operations in
accordance with IFRS 5. The following table details the results of these discontinued operations included in the group statement
of profit and loss.

                                                                                                     Audited             Audited
                                                                                                   12 months           12 months
                                                                                                       ended               ended
                                                                                                    31 March            31 March
                                                                                                        2018                2017
                                                                                                       R’000               R’000

 Revenue                                                                                                     -           109 649
 Cost of sales                                                                                               -           (50 318)
 Gross profit                                                                                               -             59 331
 Other net income/(expenses)                                                                                -               (349)
 Distribution expenses                                                                                      -                (66)
 Administration expenses                                                                                    -            (18 931)
 Results from operations                                                                                    -             39 985
 Finance income                                                                                             -                 12
 Finance cost                                                                                               -                (32)
 Profit before tax                                                                                          -             39 965
 Tax expense                                                                                                -                (23)
 Profit from discontinued operations                                                                        -             39 942



 Profit from discontinued operations attributable to:
 Owners of the parent                                                                                       -            20 371
 Non-controlling interest                                                                                   -            19 571
                                                                                                            -            39 942


7. Commitments and contingencies

                                                                                                    Audited             Audited
                                                                                                  12 months           12 months
                                                                                                      ended               ended
                                                                                                   31 March            31 March
                                                                                                       2018                2017
                                                                                                      R’000               R’000

 Operating lease commitments
 The future aggregated minimum lease payments under non-
 cancellable operating leases are as follows:
 Not later than one year                                                                             16 257              32 723
 Later than one year and not later than five years                                                   49 583              69 732
 Later than five years                                                                                  741                   -
                                                                                                     66 581             102 455

 Capital commitments
 There were no capital expenditure contracted for at the reporting date which have not yet been incurred and recognised in the
 financial statements.

 Contingencies
 The group has contingent liabilities in respect of bank and other guarantees and other matters arising in the ordinary course
 of business. It is not anticipated that any material liabilities will arise from these contingent liabilities.
8. Segment information

                                                                                                  Audited            Audited
                                                                                                12 months          12 months
                                                                                                    ended              ended
                                                                                                 31 March           31 March
                                                                                                     2018               2017
                                                                                                    R’000              R’000

 SEGMENT REVENUE
 Testing inspection and certification services                                                       3 491            14 427
 Labour supply                                                                                           -           116 921
 Information technology                                                                           813 354            649 607
 Financial services                                                                                      -            46 681
 Holdings and consolidated                                                                        (18 888)           (19 460)
 Total revenue                                                                                    797 957            808 176



 SEGMENT PROFIT / (LOSS)
 Testing inspection and certification services                                                         412              3 661
 Labour supply                                                                                           -              4 055
 Information technology                                                                            121 646            118 859
 Financial services                                                                                      -              7 312
 Holdings and consolidated                                                                        (38 263)           (72 428)
 Total profit                                                                                       83 795             61 459

 SEGMENT ASSETS
 Testing inspection and certification services                                                    501 463            550 024
 Labour supply                                                                                          -                  -
 Information technology                                                                           903 170            739 916
 Financial services                                                                                     -                  -
 Holdings and consolidated                                                                        195 949             64 644
 Total assets                                                                                   1 600 582          1 354 584



 SEGMENT LIABILITIES
 Testing inspection and certification services                                                    127 539             151 631
 Labour supply                                                                                          -                   -
 Information technology                                                                           478 269             416 757
 Financial services                                                                                     -                   -
 Holdings and consolidated                                                                        (56 675)          (162 594)
 Total liabilities                                                                                549 133             405 794



9. Related party disclosure
The group entered into transactions and had balances with related parties as listed below. These include associates, joint
operations, directors and members of key management. The transactions that are eliminated on consolidation are not included.
Transactions with related parties are effected on a commercial basis and related party debts are repayable on a commercial
basis.
                                                                                                    Audited             Audited
                                                                                                  12 months           12 months
                                                                                                      ended               ended
                                                                                                   31 March            31 March
                                                                                                       2018                2017
                                                                                                      R’000               R’000
 Kyostax Proprietary Limited
 Associate
 Revenue                                                                                              15 718             14 804
 Other financial assets                                                                                4 640              5 640
 GFI Securities Nyon SARL
 Joint operation
 Revenue                                                                                                    -            23 119
 Trade receivables                                                                                          -                 -
 Kamberg Investment Holdings Proprietary Limited
 Trade receivables                                                                                       104              5 176
 Shareholders for dividend                                                                             1 370                  -
 Interest paid                                                                                           298                  -
 Laird Investments Proprietary Limited
 Shareholders for dividend                                                                            26 934                  -
 Interest paid                                                                                         2 641                  -
 Talacar Holdings Proprietary Limited
 Consulting fees                                                                                       2 538                  -




10. Corporate Governance and changes to the board of directors of MICROmega (“board”)
MICROmega has embraced the recommendations of the King IV Report on governance and strives to provide reports to
shareholders that are timely, accurate, consistent and informative.

Subsequent to year-end, Russell Dick resigned as an executive director of the board with effect from 18 April 2018 in line with
the group’s policy to not have operational executives on the board. He was appointed as the Chief Executive Officer of
MICROmega H2O Proprietary Limited.

11. Subsequent events
With the exception of the corporate action mentioned in note 6, no other significant events have occurred in the period between
the reporting date and the date of this report.

12. Commentary on results

During the year under review, MICROmega has been restructured to become solely a provider of proprietary technology based
solutions and services. These have been classified under continuing operations in the results. We are pleased to report a 36%
growth in attributable earnings, from 54.08 cents to 73.37 cents, and 28% growth in headline earnings from 56.31 cents to
72.13 cents from these continuing operations. We are very satisfied with this growth rate given the tough market conditions
and volatile political landscape within which we have been operating.
The restructuring will cause a reduction in the earnings base after the disposal of NOSA, which has traditionally been our
second biggest earnings contributor. This was compensated for by the dividend distribution made in April 2018 of R3 a share
from the disposal proceeds. Part of the disposal proceeds have yet to be settled as they are subject to finalisation of the year
end results for NOSA and an independent review thereof. It remains our view that our market capitalisation is well below the
valuation of our underlying businesses given their capacity to deliver sustainable earnings growth, and we are therefore
continuing to explore mechanisms to unlock tangible value for our shareholders.


Prospects

MICROmega has now, for the first time since its listing in 2000, rationalised its portfolio of businesses into a single focused
portfolio. An application has been lodged with the JSE to move the FTSE sector classification from the business support
services sector to the computer services sector and it is anticipated that this will take place no later than the end of
September 2018.

Our ERP and water management solutions have now been fully aligned to the increasing adoption of the smart city concept.
In particular, our water management solutions and services are now being utilised in most regions in South Africa with the City
of Cape Town taking the lead in this regard. The success we are enjoying in South Africa affords us the platform to export our
solutions into Africa and other regions that have water demand management needs.

Financial Results

The results for the period reflect an increase of 13.86% in net asset value, a decrease of 0.7% in earnings per share, a decrease
of 2.85% in headline earnings per share and a 7.55% increase in operating profit. These results need to be viewed in the
context of the disposals of The Training Room Online, MECS Africa and MICROmega Securities businesses in the 2017
financial year, all of which contributed 28 cents per share to attributable earnings in that period. Taking this into consideration
we are pleased with the 21% growth in attributable earnings per share achieved in this reporting period.

By order of the board


28 June 2018

Directors: DA Di Siena (Independent Non-Executive Chairperson); IG Morris (Chief Executive Officer); C Kemp (Financial
Director); CA King (Director – Strategic Finance); PH Duvenhage (Non-Executive Director); TW Hamill (Non–Executive
Director); GE Jacobs (Independent Non–Executive Director); RC Lewin (Independent 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 has been reviewed or reported on by MICROmega’s auditors.

Date: 28/06/2018 05:25:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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