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MORVEST GROUP LIMITED - Interim results for the 6 month period ended 30 November 2014

Release Date: 19/02/2015 16:35
Code(s): MOR     PDF:  
 
Wrap Text
Interim results for the 6 month period ended 30 November 2014

Morvest Group Limited (previously Morvest Business Group Limited)
(Incorporated in the Republic of South Africa)
(Registration number 2003/012583/06)
JSE code: MOR
ISIN: ZAE000152567
("Morvest" or "the Company" or "the Group")


Unaudited condensed consolidated interim results 
for the six months ended 30 November 2014


Highlights
- Revenue of R537,6 million
- Headline earnings of R29,9 million
- Headline earnings per share of 6,57 cents
- Net asset value per share of 35,40 cents


Statement of profit and loss and other comprehensive income

                                                          Group
                                          Unaudited      Reviewed        Audited
                                           6 months      6 months      12 months
                                              ended         ended          ended
                                        30 November   30 November         31 May
                                               2014          2013           2014
                                              R'000         R'000          R'000
Revenue                                     537 568       545 428      1 100 757
Cost of sales                              (280 824)     (265 416)      (610 944)
Gross profit                                256 744       280 012        489 813
Earnings before interest,
impairment, taxation,
depreciation, profit on sale of
subsidiary and amortisation
("EBIITDA")                                   83 811        84 190        157 525
Depreciation                                 (5 686)       (8 634)       (16 299)
Amortisation of intangible
assets                                         (296)         (297)        (1 484)
Impairment of goodwill                            -             -        (12 325)
Operating profit before
investment income 
(operating profit)                           77 829        75 259        127 417
Net finance costs                            (7 807)       (6 235)       (13 078)
Profit/(loss) on sale of subsidiary          25 730             -         (1 703)
Profit before tax                            95 752        69 024        112 636
Income tax expense                          (27 445)      (23 642)       (40 563)
Profit for the period                        68 307        45 382         72 073
Other comprehensive income
for the period, net of tax                      143          (826)          (732)
Total comprehensive
income for the period                        68 450        44 556         71 341
Profit attributable to:
Owners of the parent                         53 134        29 499         35 563
Non-controlling interest                     15 173        15 883         36 510
                                             68 307        45 382         72 073
Total comprehensive                                                     
income attributable to:                                                 
Owners of the parent                         53 277        28 673         34 831
Non-controlling interest                     15 173        15 883         36 510
                                             68 450        44 556         71 341
Commentary to the statement               
of profit and loss and other              
comprehensive income                      
Headline earnings                         
reconciliation:                           
Profit after taxation attributable        
to equity holders of the parent              53 134        29 499         35 563
Adjusted for:                             
Goodwill impairment                               -             -         12 325
Profit/(loss) on disposal of              
subsidiary                                  (25 730)            -          1 703
Profit/(loss) on disposal of              
property, plant and equipment                     -             -           (284)
Tax effect of adjustments                     2 491             -         (2 731)
Headline earnings                            29 895        29 499         46 576
Number of shares ('000)                   
- Weighted average number                 
of shares                                   455 245       455 469        455 245
- Diluted weighted average                
number of shares                            500 890       476 074        566 659
Headline earnings per share
Headline earnings per share                    6,57          6,48          10,23
Diluted headline earnings                   
per share                                      5,97          6,20           8,22
Earnings per share (cents)                          
Earnings per share (cents)                    11,67          6,48           7,81
Diluted earnings per share (cents)            10,61          6,20           6,28
                                            

Statement of financial position

                                                          Group 
                                          Unaudited      Reviewed        Audited
                                           6 months      6 months      12 months
                                              ended         ended          ended
                                        30 November   30 November         31 May
                                               2014          2013           2014
                                              R'000         R'000          R'000
Assets                                              
Non-current assets                          357 731       362 092        320 261
Investment property                           2 331         4 394          2 331
Property, plant & equipment                 137 517       149 624        141 153
Goodwill                                    171 009       150 680        133 562
Intangible asset                                  -         1 483            296
Other financial assets                            -             -          3 306
Deferred taxation                            46 874        55 911         39 613
Current assets                              376 627       310 346        323 634
Inventories                                  21 074        17 975         19 198
Trade & other receivables                   162 488       171 939        148 668
Other financial assets                       21 133         4 763         11 184
Taxation receivable                           9 708        15 965          7 721
Operating lease asset                            20            16             16
Cash & cash equivalents                     162 204        99 688        136 847
Total assets                                734 358       672 438        643 895
Equity and liabilities                    
Equity attributable to                                
owners of the parent                        311 523       251 791        261 709
Share capital                               287 435       284 960        287 435
Foreign currency translation
reserve                                     (10 656)      (10 893)       (10 799)
Retained earnings                            28 729       (26 119)       (19 855)
Share-based payment reserve                   6 015         3 843          4 928
Non-controlling interest                     43 517        45 819         52 121
Total equity                                355 040       297 610        313 830
Non-current liabilities                     118 204        79 231         94 114
Vendor liabilities                           16 623         4 910              -
Other financial liabilities                  67 383        53 315         68 608
Finance lease obligation                     15 455        15 715         18 562
Deferred taxation                            18 743         5 291          6 944
Current liabilities                         261 114       295 597        235 951
Vendor liabilities                           27 723        19 657         14 430
Other financial liabilities                  59 970        28 334         42 941
Finance lease obligation                      2 342         8 737          4 387
Trade and other payables                    139 266       203 999        153 519
Provisions                                      607           180            180
Operating lease liabilities                     752           751              -
Current tax payable                          26 345        33 939         19 289
Bank overdraft                                4 109             -          1 205
Total equity and liabilities                734 358       672 438        643 895
Commentary to the statement
of financial position                                 
Total number of shares in issue             880 000       880 000        880 000
Net asset value per                                   
share (cents)                                 35,40         28,61          29,74
Net tangible asset value                              
per share (cents)                             15,97         11,32          14,53


Statement of cash flows

                                                          Group
                                          Unaudited      Reviewed         Audited
                                           6 months      6 months       12 months
                                              ended         ended           ended
                                        30 November   30 November          31 May
                                               2014          2013            2014
                                              R'000         R'000           R'000
Net cash flows from
operating activities                         40 750        56 079          85 094
Net cash flows from                          
investing activities                         43 736       (18 146)        (22 545)
Net cash flows from                          
financing activities                        (62 033)      (21 376)        (10 038)
Net (decrease)/increase in                   
cash and cash equivalents                    22 453        16 557          52 511
Cash and cash equivalents                    
at beginning of the period                  135 642        83 131          83 131
Cash and cash equivalents                    
at the end of the period                    158 095        99 688         135 642


Statement of changes in equity
                                                           Group
                                          Unaudited      Reviewed         Audited
                                        30 November   30 November          31 May
                                               2014          2013            2014
                                              R'000         R'000           R'000
Share capital and                     
share premium                         
Balance at beginning of               
the period                                  287 435       287 435         287 435
Issue of share capital                            -        35 547          35 547
Share repurchase                                  -        (2 475)         (2 127)
Shares cancelled                                  -             -           2 127
Share issued for BEECo                                  
share scheme                                      -             -          10 853
Share issued for BEECo 2                                
share scheme                                      -       (35 547)              -
Shares utilised for BEECo/                              
MANCo share schemes                               -             -         (46 400)
Balance at end of the period                287 435       284 960         287 435
Share-based payment reserve               
Balance at beginning of                   
the period                                    4 928         3 082           3 082
Share-based payment                       
expense                                       1 087           761           1 846
Balance at end of the period                  6 015         3 843           4 928
Foreign currency translation
reserve
Balance at beginning of                    
the period                                  (10 799)      (10 067)        (10 067)
Other comprehensive income                 
for the period                                  143          (826)           (732)
Balance at end of the period                (10 656)      (10 893)        (10 799)
Retained earnings                          
Balance at beginning of the                
period                                      (19 855)      (50 868)        (50 868)
Total comprehensive income                 
- profit for the period                      53 134        29 499          35 563
Dividends paid                               (4 550)       (4 750)         (4 550)
Balance end of the period                    28 729       (26 119)        (19 855)
Non-controlling interest                   
Balance at beginning of                    
the period                                   52 121        36 979          36 979
Profit for the period                        15 173        15 883          36 510
Disposal of subsidiary                      (15 302)            -          (6 695)
Dividend paid to non-                    
controlling interest                         (8 475)       (7 043)        (14 673)
Balance at end of the period                 43 517        45 819          52 121
Total equity                                355 040       297 610         313 830


Commentary

Basis of preparation
The unaudited condensed consolidated interim results for the period ended 30 November 2014 
have been prepared in accordance with and containing the information required by International 
Accounting Standard (IAS) 34: Interim Financial Reporting, the SAICA Financial Reporting Guides 
as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the 
Financial Reporting Standards Council, and are in compliance with the Listings Requirements 
of the JSE Limited.

The accounting policies as well as the methods of computation used in the preparation of 
the results for the period ended 30 November 2014 are in terms of International Financial
Reporting Standards (IFRS) and are consistent with those applied in the audited annual 
financial statements for the year ended 31 May 2014.

The results are presented in Rands, which is Morvest's presentation currency.

The unaudited condensed consolidated interim results have been prepared under the 
supervision of Suren Singh (MBA, MITM, CIS and ABP) in his capacity as Chief Financial 
Officer and are the responsibility of the directors of Morvest.

Introduction
The directors of Morvest present the unaudited condensed consolidated interim results for 
the six months ended 30 November 2014 ("the period"), reflecting marginal downward performance 
in revenue and EBIITDA, however headline earnings are up despite challenging market conditions.

The unaudited condensed consolidated interim results for the period ended 30 November 2014 
were authorised for issue by the directors on 19 February 2015.

Group Profile
Morvest is a black empowered global diversified investment holding group with an 
international footprint spanning Africa (South Africa, Mozambique and Nigeria), 
India, UAE and USA. The Group's operations are aligned into three segments: 
Business and Industrial Services (including Professional Services and Outsourcing 
Solutions divisions), ICT Solutions and Retail and Other Investments.

Morvest name change
The change of name of "Morvest Business Group Limited" to "Morvest Group Limited" was approved 
by the requisite majority of shareholders at the annual general meeting held on 21 November 2014 
and the special resolution amending the Company's memorandum of incorporation had been registered 
with Companies and Intellectual Property Commission ("CIPC").

Operational and Financial Review
The South African and Nigerian markets continued to be challenging for the period under 
review. Business and Industrial Services contributed to 43,9% of the revenue (2013: 49%), with 
ICT Solutions contributing 39,8% (2013: 49,9%), resulting from the sale of one of the entities 
in this segment and with Retail & Other Investments contributed 8,2% (2013: 1,6%) as a result
of the acquisition of Simmons (South Africa). Approximately 95% of revenue was generated in 
South Africa and the balance from Africa.

EBIITDA amounted to R 83,8 million (2013: R84,1 million) with margins increased slightly to 
15,6% (2013: 15,4%) The Group posted headline earnings of R29,9 million (2013: R29,5 million) 
translating into headline earnings per share of 6,57 cents (2013: 6,48 cents) up marginally, 
however the effects on headline earnings per share which if based on 880 million actual shares 
in issue is 3,4 cents per share should the share-based payments transactions be fully accounted
for today. The earnings per share is up to 11,67 cents (2013: 6,48 cents) resulting from net of 
tax profit from the sale of subsidiary amounting to R23,2 million. 

Cash and cash equivalents at the end of the period amounted to R158,1 million. The cash
included the proceeds from the sale of R and S Consulting Proprietary Limited. Given the next 6 to 12 months are
expected to be challenging, the Group is taking a prudent approach to cash utilisation and 
working capital management.

Dividend declaration
Morvest paid a final gross cash dividend of 1 cent per share for the previous year ended 
31 May 2014 on 27 October 2014.

No interim dividend was declared.



Notes to the Financial Statements

Business acquired
On 1 August 2014, the Group acquired a 75% interest in Simmons (South Africa) through 
Morvest Retail and Other Investments for a fair value purchase consideration of R71,1 million. 
An initial payment of R40 million was made on the effective transaction date, while the remaining 
balance of R 31,1 million is payable based upon the achievement of annual profit after tax ("PAT") 
targets over a three year period as per the agreement. The Group estimates that the outcomes of the 
PAT targets over the three year period to be fully achievable.

Simmons (South Africa) manufactures and distributes beds, bed bases, linen, bedding and 
ancillary and associated products, and is the partner of Simmons Bedding Company in most 
African regions, which markets and sells Simmons's International's products worldwide under 
the Simmons International guidelines. Simmons International has a 140 year history in 
manufacturing and selling high quality mattresses to the premium markets.


                                                             Group
                                       Acquisition     provisional       Recognised
                                          carrying      fair value        values on
                                            amount     adjustments      acquisition
                                             R'000           R'000            R'000
Property, plant & equipment                  1 732               -            1 732
Inventories                                 10 418               -           10 418
Trade & other receivables                   11 373               -           11 373
Other financial liability                   (9 517)              -           (9 517)
Trade and other payables                   (12 777)              -          (12 777)
Net identifiable assets                                                 
and liabilities                              1 229               -            1 229
Goodwill on acquisition                          -               -           69 909
Total consideration                              -               -           71 138
Contingent consideration                         -               -          (31 138)
Consideration funded                             -               -          (20 000)
Consideration settled in cash                    -               -           20 000
Cash acquired                                    -               -                -
Net cash (outflow)/inflow                        -               -          (20 000)


The acquisition of Simmons (South Africa) is based on provisional fair values as the 
Group has not yet determined the fair values of the identifiable assets, liabilities 
and or contingent liabilities. The fair value of the subsidiary will be accurately 
determined by the next reporting date.

The goodwill from the acquisition is mainly attributable to the exclusive licensing agreement 
which Simmons (South Africa) has with Simmons USA for specialised technology, established 
brand and Intellectual Property used in the production process of beds, bed bases, linen, 
bedding and ancillary and associated products.

If Simmon (South Africa) results for the months' of June and July were however included in 
the Group's results for the six months ended 30 November 2014, the amount that would have 
been included in the Group's results is a net profit after taxation of R1,2 million and revenue 
of R15,8 million respectively.

Disposals of business
The Group sold its entire investment, assets and liabilities in R and S Consulting (Pty) Limited, 
which formed part of the Group's ICT Solutions reportable segment, for R73,3 million. The profit 
on sale of R 25,7 million is disclosed as profit on sale of a subsidiary in the statement of 
comprehensive income.

Morvest believes that it is the appropriate time to dispose of its shareholding at an acceptable 
return on its initial investment. The cash proceeds will be utilised to explore certain alternative 
opportunities in line with Morvest's diversified investment holding strategy.

                                          R'000
Property, plant and equipment             1 752
Deferred taxation                           759
Inventory                                   345
Trade and other receivables              32 873
Cash and cash equivalents                 7 054
Finance lease                              (663)
Current tax payable                      (6 350)
Trade and other payables                 (5 463)
Total net assets disposed                30 307
Goodwill disposed                        32 462
Non-controlling interest                (15 150)
                                         47 619
Profit on sale                
of business                              25 730
Total consideration                      73 349
Consideration receivable                 (6 081)
Consideration settled in cash            67 268
Cash disposed                            (7 054)
Net cash (outflow)/inflow                60 214


Goodwill                             
The goodwill amount per the statement of financial position is reconciled as follows:

                                          R'000
Cost                                    200 329
Accumulated impairments                 (66 767)
Carrying amount at                    
31 May 2014                             133 562
Acquisition of Simmons                
(South Africa)                           69 909
Disposal of R and S                   
Consulting (Pty) Limited                (32 462)
Carrying amount at                    
30 November 2014                        171 009


Segmental reporting
The Business and Industrial Services division contributed 43,9% (2013: 49%) of group turnover.

The Group started a new Retail and Other Investments segment during the 2012 financial year. 
This segment did not meet the requirements of IFRS 8 for it to be reported separately in the 
prior periods and was included in the ICT Solutions Segment, however, this segment now meets 
the requirements of IFRS 8 for it to be reported separately and has been included as Retail 
Investments segment.

As a result of the above, the Group has reclassified the comparative segment information for 
the six month period ended 30 November 2013 and for the twelve month period ended 31 May 2014.


                                    External       Internal          Total
                                     segment        segment        segment
                                     revenue        revenue        revenue
                                       R'000          R'000          R'000
November 2014                                    
Business and Industrial                          
Services                             236 167         43 644        279 811
ICT Solutions                        214 124         39 571        253 695
Retail and other
Investments                           37 071          6 851         43 922
Corporate                             50 206          9 278         59 484
Elimination                                -        (99 344)       (99 344)
Total                                537 568              -        537 568
November 2013                                    
Business and Industrial                          
Services                             267 202         30 475        297 677
ICT Solutions                        272 092         26 479        298 571
Retail and other 
Investments                            6 134          2 305          8 439
Corporate                                  -         56 782         56 782
Elimination                                -       (116 041)      (116 041)
Total                                545 428              -        545 428
May 2014                                         
Business and Industrial                          
Services                             510 281         66 290        576 571
ICT Solutions                        578 856         59 041        637 897
Retail and other 
Investments                           10 963          7 150         18 113
Corporate                                657        138 565        139 222
Elimination                                -       (271 046)      (271 046)
Total                              1 100 757              -      1 100 757


                                Profit/(loss)         Total          Total
                                for the year         assets    liabilities
                                       R'000          R'000          R'000
November 2014
Business and Industrial
Services                              18 361        531 384        159 337
ICT Solutions                         21 877        327 520        249 602
Retail and other 
Investments                            8 597        142 621        136 678
Corporate                             22 529        886 556        616 503
Elimination                           (3 057)    (1 153 723)      (782 802)
Total                                 68 307        734 358        379 318
November 2013
Business and Industrial
Services                              22 882        535 735        200 600
ICT Solutions                         27 077        367 848        296 429
Retail and other 
Investments                           (1 321)        22 208         17 865
Corporate                              9 953        888 836        628 671
Elimination                          (13 209)    (1 142 189)      (768 737)
Total                                 45 382        672 438        374 828
May 2014
Business and Industrial
Services                              38 955        548 673        194 034
ICT Solutions                         66 031        357 099        276 351
Retail and other 
Investments                           (2 494)        25 745         18 810
Corporate                              3 824        894 589        652 142
Elimination                          (34 243)    (1 182 211)      (811 272)
Total                                 72 073        643 895        330 065


Related Parties
During the period under review, certain subsidiaries in the ordinary course of business 
entered into various loans and transactions with related parties under terms that are no 
less or more favourable than those arranged with third parties.

Transactions between the company and its subsidiaries, which are related parties of the 
company, have been eliminated and consolidated.

Events after the reporting date
Subsequent to the six months ended reporting period, the Group through Morvest Retail and
Other Investments (Proprietary) Limited a 50,01% subsidiary, has withdrawn from an agreement 
with Omman, whereby Morvest Retail was going to acquire 50,05% of the share capital of Omman 
for a total purchase consideration of R 2,5 million. Omman is a property rental business whose 
sole property is Ushaka Mall situated in Stanger, Durban.

Outlook
Looking ahead, the directors are confident that the Group is establishing a solid platform 
for long-term growth with its strategy to become a global diversified investment holding
company, however, we continue to see the next 6 to 12 months to be challenging. A key focus 
area will be investments into strategic businesses and retail brands in African markets
as well as the emerging markets of India and the UAE to offset the difficult local trading 
conditions. Cost cutting remains a key focus area. New B-BBEE requirements remains a risk
which the Group is proactively addressing.

Appreciation
We thank all directors, managers and staff for their tenacity and drive which contributed to 
the Group's performance in a tough economic environment.

We further extend our appreciation to all our shareholders, business associates and loyal 
customers for their unwavering support in these difficult times.

By order of the board

Mohammed Varachia
CEO

Suren Singh
CFO

19 February 2015


Directors
Dr PS Molefe (Chairman)*#,
MS Varachia (CEO),
S Singh (CFO),
M Papiyana (Group HR Director),
A Evan (Executive Director),
Prof. B Marx *#,
NY Mhinga*#,
A Mohammadali-Haji*#
* Non-executive     # Independent

Registered office
188 14th Road,
Noordwyk,
Midrand,
1685

PO Box 4307,
Halfway House,
Midrand,
1685

Transfer secretaries
Computershare Investor Services (Proprietary) Limited,
70 Marshall Street,
Johannesburg

PO Box 61051,
Marshalltown,
2107

Company secretary
Noelene Beryl January,
188 14th Road,
Noordwyk,
Midrand,
1685

PO Box 4307,
Halfway House,
Midrand,
1685

Sponsor
Sasfin Capital (A division of Sasfin Bank Limited)

Auditors
Mazars (Gauteng) Inc.

www.morvest.co.za








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