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SEBATA HOLDINGS LIMITED - Provisional Condensed Annual Consolidated Results for the Year Ended 31 March 2019

Release Date: 28/06/2019 09:59
Code(s): SEB     PDF:  
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Provisional Condensed Annual Consolidated Results for the Year Ended 31 March 2019

Sebata Holdings Limited
Incorporated in the Republic of South Africa
(Registration number 1998/003821/06)
JSE Share code: SEB ISIN: ZAE0000260493
(“Sebata” or “the company” or “the group”)

PROVISIONAL CONDENSED ANNUAL CONSOLIDATED RESULTS FOR THE YEAR ENDED 31 MARCH 2019

CONDENSED GROUP STATEMENT OF PROFIT AND LOSS

                                                                      Audited          Audited
                                                                    12 months        12 months
                                                                        ended            ended
                                                                     31 March         31 March
                                                                         2019             2018
                                                                        R’000            R’000
Continuing operations
Revenue                                                                751 909        797 957
Cost of sales                                                        (384 189)      (354 790)
Gross profit                                                           367 720        443 167
Other net income                                                       308 380         41 349
Distribution expenses                                                   (4 467)       (4 489)
Administration expenses                                              (382 956)      (344 033)
Profit from operations                                                 288 677        135 994
Finance income                                                            7 831         2 073
Finance cost                                                            (6 875)       (8 210)
Share of profit of equity accounted associate                             1 896         1 271
Profit before tax                                                      291 529        131 128
Tax expense                                                          (133 381)       (37 269)
Profit for the year from continuing operations                         158 148         93 859
Profit for the year from discontinued operations                              -        95 989
Profit for the year                                                    158 148        189 848



Profit attributable to:
Owners of the parent - continuing                                     151 233          83 795
Owners of the parent - discontinued                                         -          92 656
Non-controlling interest - continuing                                   6 915          10 064
Non-controlling interest - discontinued                                     -           3 333
                                                                       158 148         189 848
Attributable earnings per share (cents)
Basic                                                                  131.93          154.50
Continuing operations                                                  131.93           73.37
Discontinued operations                                                      -          81.13
Diluted basic                                                          131.82          154.04
Continuing operations                                                  131.82           73.15
Discontinued operations                                                      -          80.89
Headline                                                               (30.19)         153.26
Continuing operations                                                  (30.19)          72.13
Discontinued operations                                                      -          81.13
Diluted headline                                                        (30.16)         152.80
Continuing operations                                                   (30.16)          71.91
Discontinued operations                                                       -          80.89



CONDENSED GROUP STATEMENT OF OTHER COMPREHENSIVE INCOME

                                                                    Audited      Audited
                                                                  12 months    12 months
                                                                      ended        ended
                                                                   31 March     31 March
                                                                       2019         2018
                                                                      R’000        R’000

Profit for the year                                                 158 148      189 848
Other comprehensive income:
Foreign currency translation differences                               (35)        1 502
Disposal of subsidiaries                                             2 785       (1 730)
                                                                    160 898      189 620

Total comprehensive income attributable to:
Owners of the parent                                                153 983      176 223
Non-controlling interest                                              6 915       13 397
                                                                    160 898      189 620

Reconciliation of headline earnings (net of tax) for continuing
operations:
Profit attributable to owners of the parent                          151 233      83 795
Loss/(profit) on disposal of property, plant and equipment               670       (443)
Loss/(profit) on disposal of investment in subsidiaries            (186 510)       (977)
Headline earnings                                                   (34 607)      82 375

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

Weighted average number of shares (000s)                            114 629      114 209
Diluted weighted average number of shares (000s)                    114 723      114 549
Total number of shares in issue (000s)                              112 284      114 597


CONDENSED GROUP STATEMENT OF FINANCIAL POSITION

                                                             Audited     Audited
                                                               as at       as at
                                                            31 March    31 March
                                                                2019        2018
                                                               R’000       R’000
ASSETS
Non-current assets                                           690 003     664 702
Property, plant and equipment                                 29 829      36 245
Intangible assets                                            626 831     560 104
Investments in associates                                     19 702      17 806
Other financial assets                                             -      25 000
Deferred tax assets                                           13 641      25 547

Current assets                                               428 384     434 417
Inventories                                                   74 288      53 114
Trade and other receivables                                  225 889     295 571
Current tax                                                    6 681       6 335
Other financial assets                                        79 854      39 777
Cash and cash equivalents                                     41 672      39 620

Assets held for sale                                                -    501 463

TOTAL ASSETS                                                1 118 387   1 600 582

EQUITY AND LIABILITIES
EQUITY                                                       790 441    1 051 449
Share capital and share premium                              280 372      295 937
Other reserves                                                 8 653        7 114
Retained earnings                                            455 992      650 059
Non-controlling interest                                      45 424       98 339

LIABILITIES
Non-current liabilities                                       95 556      77 449
Other financial liabilities                                      881       1 745
Deferred vendor payments                                           -       8 566
Deferred tax liabilities                                      94 675      67 138

Current liabilities                                          232 390     344 145
Trade and other payables                                     116 863     177 255
Other financial liabilities                                    5 752      35 320
Current tax                                                   79 756       6 271
Deferred vendor payments                                       7 473       6 571
Bank overdraft                                                22 546     118 728

Liabilities directly associated with assets held for sale           -    127 539

TOTAL LIABILITIES                                            327 946     549 133

TOTAL EQUITY AND LIABILITIES                                1 118 387   1 600 582
Net asset value per share (cents)                              663.51      831.71
Net tangible asset value per share (cents)                     105.26        342.95




CONDENSED GROUP STATEMENT OF CASH FLOW

                                                                         Audited       Audited
                                                                       12 months     12 months
                                                                           ended         ended
                                                                        31 March      31 March
                                                                            2019          2018
                                                                            R’000         R’000
Cash flow from operating activities                                       (23 950)      234 876
Cash generated from operations                                             (2 567)      261 541
Finance income                                                               5 583        1 968
Finance costs                                                              (6 025)        (324)
Income tax paid                                                           (20 941)     (28 309)

Cash flow from investing activities                                        518 631    (225 935)
Property, plant and equipment acquired                                     (9 979)     (42 506)
Intangible assets acquired                                                (86 681)    (168 919)
Proceeds on disposal of property, plant and equipment                        2 863        2 120
Acquisition of subsidiaries and businesses                                       -      (4 376)
Cash received/(forfeited) on disposal of subsidiaries and businesses       596 191     (13 765)
Loans receivable repaid                                                     16 237        1 511

Cash flow from financing activities                                      (396 447)      (60 972)
Treasury shares repurchased                                               (15 794)         (544)
Other financial liabilities repaid                                        (31 147)       (4 625)
Other financial liabilities raised                                               -        31 960
Deferred vendor payments repaid                                            (2 959)      (19 497)
Dividends paid to non-controlling interest                                 (2 755)       (5 332)
Dividends paid                                                           (343 792)      (62 934)



(Decrease)/Increase in cash and cash equivalents                           98 234       (52 031)
Cash and cash equivalents included in assets held for sale                      -       (19 057)
Cash and cash equivalents at the beginning of the year                   (79 108)        (8 020)
Cash and cash equivalents at the end of the year                           19 126       (79 108)
 CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY




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

 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)
 Treasury shares purchased                                     (538)               -               -               -            (538)
 Share-based payment transactions                              4 023             433           1 625               -            6 081
 Disposal of subsidiaries                                          -         (1 730)               -        (24 238)         (25 968)
 Balance at 31 March 2018                                    295 937           7 114        650 059           98 339        1 051 449

 Adjustment on initial application of IFRS 9 and                     -              -        (2 320)                -         (2 320)
 IFRS 15 net of taxes
 Balance at 1 April 2018 as adjusted                         295 937           7 114        647 739          98 339        1 049 129
 Profit for the year                                               -               -        151 233           6 915          158 148
 Other comprehensive income
 Foreign currency translation differences                            -           (35)              -                -           (35)
 Transactions with owners, recorded directly in
 equity
 Dividends paid                                                                           (343 792)          (2 755)        (346 547)
 Share-based payment transactions                                 229        (1 211)            812                -            (170)
 Disposal of subsidiaries                                           -          2 785              -         (57 075)         (54 290)
 Treasury shares purchased                                   (15 794)              -              -                -         (15 794)
 Balance at 31 March 2019                                    280 372           8 653        455 992           45 424          790 441

NOTES TO THE GROUP FINANCIAL INFORMATION

1. Basis of preparation
These provisional condensed annual consolidated financial statements for the year ended 31 March 2019 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 (“JSE”) 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 Pierre van Eeden, 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 2018 other than the adoption of the new standards disclosed in note 4.

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. New standards implemented
The group has adopted all new accounting standards that became effective in the current reporting period. The following
standards had an impact on the group:
    - IFRS 9 Financial Instruments (IFRS 9); and
    - IFRS 15 Revenue from contracts with customers (IFRS 15).
The changes in accounting policies were applied in accordance with the modified retrospective approach.

Adoption of IFRS 9
IFRS 9 was issued by the IASB in July 2014 and is effective for accounting periods beginning on or after 1 January 2018. IFRS
9 replaces IAS 39 Financial Instruments: Recognition and Measurement and introduces new requirements for:
     1) the classification of financial assets and financial liabilities;
     2) the impairment of financial accounting; and
     3) general hedge accounting.
The group has adopted the modified retrospective approach in applying IFRS 9 whereby no comparative figures are restated
but instead, a cumulative catch – up adjustments is recognised, if necessary, in opening retained earnings.

Classification, measurement and derecognition
There has been no change in the classification of the group’s financial assets and financial liabilities.

Impairment model
IFRS 9 introduces an expected credit loss model (“ECL”) as opposed to an incurred credit loss approach in recognising any
impairment of financial assets. The expected credit loss model requires the group to account for expected credit losses and
changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the
financial assets. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised.

Effect of adopting IFRS 9
                                                                                                                         Adjusted
Figures displayed in R’000                                                                        Recognition     balance 1 April
                                                                                 1 April 2018          of ECL                2018
Trade and other receivables                                                          295 571          (3 222)             293 251
Deferred tax                                                                        (41 591)              902            (42 943)
Retained earnings                                                                  (650 059)             2320           (647 739)

Adoption of IFRS 15
The group adopted the new standard of recognising revenue from contracts with customers, effective for years beginning
1 January 2018. This standard combines, enhances and replaces specific guidance on recognising revenue from contacts with
customers with a single standard. IFRS 15 establishes a comprehensive framework for determining whether, how much and
when revenue is recognised. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. Under
IFRS 15, revenue is recognised at an amount that reflects the new five step-model to recognise revenue from customers
contracts, which requires:
    - the identification of the contract with customers;
    - identify the performance obligation in the contract;
    - determining the transaction price;
    - allocating the transaction price to the performance obligation; and
    - recognising the revenue as the performance obligation has been met.

Effect of adopting IFRS15
The group undertook a review of the main types of commercial arrangements used with customers under this model and has
concluded that the application of IFRS 15 has not resulted in a material impact for the year ended 31 March 2019. Consequently
the opening retained earnings balance has not been adjusted.

5. Business combinations
Sharepoint Garage Proprietary Limited (“Sharepoint Garage”)
On 1 October 2018, the group acquired 100% of the intellectual property and assumed identified liabilities in the form of deferred
vendor payments of Sharepoint Garage for a consideration of R1.168 million. Goodwill to the value of R1.168 million was
accounted for.

Sharepoint Garage specialises in the implementation of bespoke solutions encompassing the entire Microsoft suite of products,
with special focus on integrated business intelligence and analytics solutions, together with complex Microsoft Sharepoint
migrations.

6. Disposal of subsidiaries
NOSA Group - Testing inspection and certification services segment
On 3 April 2018, the group disposed of its interests in the NOSA Group of companies for a consideration of R625.7 million,
which resulted in a loss of control. This event resulted in the derecognition of net assets of R373.9 million, which is included in
the profit on disposal of R306 million.

7. Commitments and contingencies

                                                                                                      Audited              Audited
                                                                                                    12 months            12 months
                                                                                                        ended                ended
                                                                                                     31 March             31 March
                                                                                                         2019                 2018
                                                                                                        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                                                                                 19 744              16 257
Later than one year and not later than five years                                                       20 709              49 583
Later than five years                                                                                        -                 741
                                                                                                         40 453              66 581

Capital commitments
There was 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
                                                2019         2018
                                               R’000        R’000

SEGMENT REVENUE
Water technologies                          210 900      226 339
ICT consulting                              322 963      251 309
Software solutions                            72 956     203 450
ICT support services                        184 759      148 787
Holdings and consolidated                   (39 669)     (31 928)
Total revenue                               751 909      797 957

SEGMENT PROFIT / (LOSS)
Water technologies                            2 526        10 438
ICT consulting                               11 068        12 027
Software solutions                           18 236        74 052
ICT support services                         10 564        11 897
Holdings and consolidated                   109 037      (24 619)
Total profit                                151 431        83 795

SEGMENT ASSETS
Water technologies                           217 916      283 679
ICT consulting                               187 493      188 564
Software solutions                           627 621      503 851
ICT support services                          47 392       62 595
Holdings and consolidated                     38 365      561 893
Total assets                               1 118 787    1 600 582

SEGMENT LIABILITIES
Water technologies                           120 534     166 076
ICT consulting                               166 181      56 788
Software solutions                           268 720     272 439
ICT support services                          13 356      26 053
Holdings and consolidated                  (240 845)      27 777
Total liabilities                            327 946     549 133

9. Revenue from contracts with customers
Sale of goods                               247 188      296 478
Services                                    504 721      501 479
                                             751 909      797 957
Disaggregation of revenue
Major product lines over a point in time
Software license with support and maintenance                                                         54 755              70 691
                                                                                                      54 755              70 691
Major product lines over a point in time
Consulting                                                                                           208 084             201 931
Support services                                                                                     241 882             228 857
Goods                                                                                                247 188             296 478
                                                                                                     697 154             727 266


Total revenue from contracts with customers                                                         751 909             797 957


The table set out below reflects the amount of revenue recognised in the current reporting period relating to carried forward
contract liabilities and the amount relating to performance obligations that were previously satisfied.


Opening balance                                                                                      8 449
Movement for the year                                                                                2 042
Closing balance                                                                                     10 491

At the beginning of the year, R8.4 million was recognised as a contract liability. The total amount was recognised as revenue
during the current year due to the short-term nature of the contracts entered into. The closing balance represents new contracts
entered into where performance obligations had not yet been met at year-end. The contract liability will be recognised as
revenue in the next financial year.

10. Related party disclosure
Listed below are the balances in respect of transactions entered into with related parties. 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
                                                                                                        2019               2018
                                                                                                       R’000              R’000
 Kyostax Proprietary Limited
 Associate
 Rental expense                                                                                        17 058            15 718
 Other financial assets                                                                                 4 640             4 640
 Kamberg Investment Holdings Proprietary Limited
 Trade receivables                                                                                          -               104
 Shareholders for dividend                                                                                  -             1 370
 Interest paid                                                                                            846               298
 Laird Investments Proprietary Limited
 Shareholders for dividend                                                                                  -             26 934
 Interest paid                                                                                          3 079              2 641
 Talacar Holdings Proprietary Limited
 Consulting fees                                                                                        2 538              2 538

11. Corporate Governance and changes to the board of directors of Sebata (“board”)
Sebata 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.

The following changes to the board occurred during the year under review:
   - Cornelia Kemp resigned as the Financial Director with effect from 31 October 2018.
   - Pierre van Eeden was appointed as Financial Director with effect from 1 November 2018.
   - Grant Jacobs resigned as Independent Non-Executive Director with effect from 12 October 2018.
   - Ruan Viljoen resigned as the Company Secretary with effect from 31 October 2018.
   - Reegan Smith was appointed as the Company Secretary with effect from 1 November 2018.

12. Subsequent events
On 31 May 2019, the group disposed of its’ 50% interest in Mubesko Africa Proprietary Limited for a consideration of R43.1
million. The decision was taken by the board to focus its energy on the internal accounting and professional services housed
within the consulting segment, which is 100% owned.

On 6 May 2019, the group acquired the balance of the minority shareholding (17%) in USC Metering Proprietary Limited for a
consideration of R20 million.

13. Commentary on results
During the year under review, Sebata was restructured to become solely a provider of proprietary technology-based solutions
and services aligned to four distinct operating divisions. These operating divisions have been classified under continuing
operations and disclosed in the segmental reporting note. Given the tough market conditions and volatile political landscape
within which we have been operating, the investment made in the Software Solutions division and the slower than expected
uptake of these solutions within Local Government, the performance of the group has not been where we anticipated it to be.
While EPS from continuing operations of 131.93 cents reflected an 80% increase from 73.37 cents as at 31 March 2018, this
is distorted by the profit recognised on the sale of the NOSA Group. The decrease of 142% in the HEPS from continuing
operations from 72.13 cents as at 31 March 2018 to -30.19 cents reflects such distribution. The decrease in continued HEPS
is a direct result of the following:
-    A key municipal client failing to pay approximately R88 million that is due to the company. While management is confident
     that the funds will be received, the board has decided to exclude this amount from the period’s earnings due to the
     prolonged difficulty in receiving payment;
-    As a result of the investment into the software division for the development of the ERP solution for Local Government
     having been completed and the system implemented, amortisation of R21 million has been expensed in the current period;
     and
-    Tough trading conditions within the Local Government sector due to the election year. It has been the board’s experience
     that Government spending typically slows in the year of an election due to the uncertainty associated with the outcome.

Outlook
Sebata has now, for the first time since its listing in 2000, rationalised its portfolio of businesses into a single focused portfolio
and has reclassified its FTSE sector classification with the JSE from the business support services to the computer services
sector. In line with this rationalisation the Group has been reorganised into four distinct divisions; Software Solutions, Water
Technologies, ICT Support Services and Consulting Services allowing for a clear focus and strategy underpinned by proprietary
intellectual property.

With the elections behind us and more certainty having been established in the market, the board expects increased spending
from Local Government. We have already seen positive signs of this increase within the Water Technologies Division and we
expect this sentiment to flow through to the other segments of the business as well. The Water Technologies division continues
to perform well as the demand for our water management devices and solutions grows both locally and internationally. With
improved sentiment towards Government, we expect that the investment made in the Software Solutions division will bear fruit,
and with a superior product and reduced competition, we expect strong returns from this division.
Additionally, the board is actively seeking to address its current empowerment credentials, which are essential in the sector in
which Sebata operates.

Financial Results
Revenue decreased by 5.8% compared to the prior comparative period. This is as a direct result of the aforementioned tough
trading environment. The increased cost base resulting from the divisional restructuring added further pressure to the bottom
line. However, these were deemed to be essential one-off costs. The board, however is confident that with the new rationalised
and restructured business, the elections being behind us and with more certainty in the market that the Group will be able to
generate the expected returns for shareholders in the next financial year.

Dividends
Aside from the special dividend of 300 cents per share declared in April 2018, no dividend has been declared for the 2019
financial year (FY2018: Nil). Although it has been previously communicated and anticipated that there would be a further
dividend of 100cents per share declared in line with the disposal of the NOSA group companies, the ongoing dispute around
the final purchase price with the purchasers and the current results have left the board with no alternative but to delay this
dividend.

By order of the board

28 June 2019

Directors: DA Di Siena (Independent Non-Executive Chairperson); IG Morris (Chief Executive Officer); P van Eeden (Financial
Director); CA King (Director – Strategic Finance); PH Duvenhage (Non-Executive Director); TW Hamill (Non–Executive
Director); RC Lewin (Independent Non–Executive Director); and D Passmore (Independent Non-Executive Director)

Company Secretary: RB Smith

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 Sebata’s auditors.

Date: 28/06/2019 09:59:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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