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COGNITION HOLDINGS LIMITED - Reviewed Preliminary Condensed Consolidated Results for the Year Ended 30 June 2019

Release Date: 18/09/2019 17:00
Code(s): CGN     PDF:  
 
Wrap Text
Reviewed Preliminary Condensed Consolidated Results for the Year Ended 30 June 2019

COGNITION HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number: 1997/010640/06)
Share code: CGN ISIN: ZAE000197042
(“Cognition” or “the Group” or “the Company”)


SHORT FORM – REVIEWED PRELIMINARY CONDENSED CONSOLIDATED RESULTS
FOR THE YEAR ENDED 30 JUNE 2019

 HIGHLIGHTS

                                                                          30 June 2019      30 June 2018
                                                    Change                       R'000             R'000
 Total assets                                        59.97%                    354 808           221 800
 Cash and cash equivalents                           18.25%                    123 440           104 391
 Equity                                              98.56%                    297 949           150 052
 Total liabilities                                  -20.75%                     56 859            71 748


 Financial Performance for the period:
                                                                          30 June 2019      30 June 2018
                                                                                 R'000             R'000
 Revenue                                             36.27%                    215 149           157 884
 Gross profit                                        62.41%                    155 325            95 640
 Profit before tax                                   -9.11%                     25 833            28 422

 Net asset value and earnings per share:
 Net asset value per share                            6.97%                116.05 cents      108.49 cents
 Basic earnings per share                           -45.17%                  8.17 cents       14.90 cents
 Headline earnings per share                        -37.43%                  9.31 cents       14.88 cents


The results for the period under review were a reflection of a low growth domestic market, with protracted
tough economic conditions.

Many of our clients that we provide support services to did not anticipate the extent to which the market
would deteriorate and many were forced to reduce their budgets and promotional activity, resulting in
reduced work to a number of our Group’s operating divisions.

The Group increased its Gross Revenue by 29.4%, of which 10.2% was achieved organically via its legacy
businesses, and a further 19.2% by means of the acquisition of Private Property. Gross revenue, which
includes revenue earned by the Group for facilitating agency-based payment services, amounted to R239
million compared to R193 million in the previous financial year. The legacy businesses are the businesses
that made up the Group prior to the acquisition of Private Property and comprise of FoneWorx, BMi
Research and BMi Sport Group.

Revenue for the Group increased to R215 million, compared to R157 million in the previous financial year.
This increase was achieved despite a significant reduction in Revenue of R27.5 million earned from the
Group’s Fax2email and Research assets, whereas the legacy businesses showed resilient growth of R16.4
million for the year. The addition of Revenue from Private Property results in a net increase of 36.3%
revenue growth.

Revenue from both divisions, Active Data Exchange Services and Knowledge Creation and Management
segments, increased by 15.9% and 46.7%, respectively. Gross Profit for Active Data Exchange Services
increased by R14.4 million to R49.9 million from R35.5 million. This was achieved organically. The Gross
Profit for the Knowledge Creation and Management segment increased by 75.3% from R60 million to
R105.5 million which can mostly be attributed to Private Property.

The Group’s operational cost increased significantly to R52.1 million from R18.3 million. The legacy
businesses’ operating costs increased 28% primarily due to significant transaction fees relating to the
Acquisition. Private Property operating costs for the five months amounted to R31 million resulting in the
184% total increase for the Group this year. Staff costs for the year increased by 48.9% with the inclusion
of Private Property. The staff cost of the legacy businesses increased marginally by 2.9% from R52.5 million
to R54 million for the year.

The impact of the increased expenditure was not offset by the additional revenue of the Group, resulting in
a reduction of Total Comprehensive Income of 17.1% from R20.6 million to R17 million. Based on the
weighted average number of shares in issue for the period of 179 079 268 shares (2018: 137 615 798),
earnings per share (“EPS”) declined by 45.17% from 14.9 cents in the 2018 financial year to 8.17 cents this
financial year. Headline earnings per share (“HEPS”) declined from 14.88 cents per share to 9.32 cents per
share.

The Group’s cash resources increased from R104 million in the previous financial year to R123 million, an
increase of 18.25%.

The Cognition Group is made up of a number of, what may appear to be, disparate offerings. However,
the common thread or theme attributable to each offering is the collection, processing and management of
personal data and the ability for our clients to manage and monetise such data in a structured, compliant
and insightful manner.

Each of our operational offerings, as explained more fully hereunder, is either a technology or a process
which enables our clients to have deeper insight and understanding of their customers so that they are
better able to develop more meaningful and relevant communication with their customers.

Divisional Performance

Active Date Exchange Services (“ADES”)

ADES, in layman’s terms, comprises all of the Group’s technologies that are used in any form of messaging,
such as short message services (SMS), unstructured supplementary service data (USSD), email services
and faxing services. These are all marketed to our clients via our brand, MediaWorx, and our clients use
these services as “Call2Action” campaigns, essentially encouraging their customers to enter a promotion
or competition for some form of reward or prize.
By adopting these ADES, we enable our clients, not only to engage with their customers, but also to collect
valuable data about their customers.

Brands need to understand their consumers at a deeper level (granular level) and hence this form of data
exchange is ideal. Data, and in particular personal data, has become central to every single aspect of
running any business.

Although the ADES industry is very competitive, the benefits that our Group have are:
-      that the technology platform is proprietary;

-       we are contracted with all mobile and fixed line networks in South Africa;

-       we have designed remote access to over 80 mobile networks into Africa; and

-       we offer a turnkey solution on technology, consulting, service design and fulfilment of physical or
        virtual rewards.

During the period under review, MediaWorx managed over 300 campaigns on behalf of 70 clients covering
160 brands including: Liberty, Rohloff, Lindor, Gemini, Matriach, Duel, SA Homeloans, Imana – Pick n Pay,
Cassava, Vamara, Computershare, Datacore Media, ABInBev (Hansa, Redds, Carling Cup, Carling Black
Label and Castle Lager), Defy, Lion Match, Pep, Ackermans, Premier Foods, Marico, Checkers, Soweto
TV, Cambridge, Lucky Star, Bokomo, AfriSam and Bokomo.

MediaWorx is one of the largest and most innovative USSD suppliers in South Africa.

We are confident that our platform and innovative approach to using ADES can assist clients in building
much needed personal databases which must ultimately be compliant with privacy legislation such as the
Protection of Personal Information Act (“POPIA”) and the General Data Protection Regulations (“GDPR”).

As discussed in the aforementioned ‘Group Performance’ paragraph, the trading conditions throughout
Africa deteriorated substantially during the year which resulted in many of our existing clients reducing their
marketing and promotional budgets, which meant that we managed fewer services on their behalf. With a
protracted low growth domestic economy, we anticipate this trend will continue. On the positive side, our
proprietary platforms are both well managed and instantly scalable, meaning that when the economy turns,
we can immediately host an unlimited number of campaigns.

Document Exchange Services

These services, which form part of ADES, include our Fax2Email, Email2Fax and SecurDox. Whilst faxing
continues to decline, we still maintain an active database of around 73,000 subscribers (2018: 90,000) and
process around 28 000 faxes per day.

SecurDox, which is a more secure encrypted document transfer system using Blockchain, continues to be
an alternative to Fax2Email and will become a more suitable alternative to clients when POPIA becomes
fully enacted.

Channel Incentive and Loyalty

Brands typically have some form of reward or incentive methodology to “sell-in” stock into a retail
environment or store and a “sell-out” strategy to promote stock to consumers.
The Group has developed a proprietary platform which is web and mobile based. It enables brands to
incentivise staff, agents and contractors (“incentive member”) by rewarding them for selling defined
products to consumers.

Our proprietary platform has various modules including FICA registration, claims processing, moderation,
payment of funds (rewards) into a wallet and a Mastercard allocated to each incentive member who can
then transfer their allocated funds (rewards) from the wallet to their card. Since the development of the
platform in November 2015, we have processed over R400 million via an average of 10,000 active cards,
although more cards have been issued.

During the period under review, we have seen a renewed interest in our incentive platform offering from a
number of new clients and we are currently engaging with them to structure possible incentive programmes
similar to those we currently provide.

When economic conditions become stressed, brands typically look to more innovative ways to stimulate
sales and this programme and platform offers such an opportunity.

Platform Technology and Knowledge Management

Although brands are aware that Big Data is becoming central to the running of a business, they are not all
aware as to what data to collect and how to collect, process and manage such data.

To this end, Cognition has developed a 15-step process or roadmap to guide clients through this process
in a structured and focussed manner. The methodology is referred to as Knowledge 350°.

The aim of this process is to collect the desired personal data (demographic / psychographic) and store it
in a manageable platform so that the data can be used for research, marketing and to drive desired
consumer behaviour.

The process is “non-invasive” and typically provides for “volunteered data” or “self-curated data”, placing
the consumer in control of their data, but on a permission-based principle enabling brands to have access
to such rich and dynamic data.

We refer to such a platform as Personal Information Management platform (“PIM”) which conforms to the
best of class privacy regulations, such as POPIA and GDPR.

Each of the services previously referred to in this report (ADES and Channel Incentive) would be engaged
to ultimately interface to the PIM platform and be deployed to either collect or manage data.

To ultimately facilitate and enhance the manner in which insights can be extracted from the PIM platform,
research and analytical skills need to be deployed. To acquire these skills and businesses as going
concerns, the Group has over the past five years made the following acquisitions:

BMi Research Proprietary Limited (“BMiR”)

BMiR provides total research solutions for the following sectors: retail, manufacturing, packaging, food
services, automotive, telecoms and financial services.
The services offered include: market performance, shopper insights, data management and integration,
analytics and consulting, mystery shopping, print ads, EPOS and ISOS.

During the period under review, a large services project came to its natural conclusion resulting in revenue
dropping by 24% and profit before tax being down 62%. At the end of the financial year (June), the CEO
of 11 years, Gareth Pearson, decided to retire from the business and he was replaced by Kevin Kruger,
previously the managing director of IRi South Africa. Kevin has a wealth of experience in the services
offered by BMiR and is currently putting into place a re-engineered strategy to take the business into the
next decade. We would like to thank Gareth Pearson for his contribution and loyalty to BMiR over his long
tenure.

BMi Sport Info Proprietary Limited (“BMiS”)

BMiS provides a defined range of sport - and sponsorships - related services. These services include:
sport tracking and sponsorship consulting, e-gaming, millennial tracking, socio-economic and sporting
impact evaluation and bespoke sporting evaluation.

BMiS is gearing up to launch a database management programme for defined sporting codes which will
operate as a multi-sided platform for brands, spectators and sport participants.

The period under review was challenging as the poor economic conditions resulted in many blue-chip
clients cutting back on sponsorships and research.

Livingfacts Proprietary Limited (“Livingfacts”)

Livingfacts provides customised research solutions with “deep dive” compatibility, both on a quantitative
and qualitative level that assists boards and management to implement insightful and intelligent strategies.

Revenue for the period was up 10%, however with margins under pressure, profit before tax showed no
growth on the previous year.

Corporate Transactions

During the period under review, the Group acquired 50.01% in Private Property from CTP Limited. The
Acquisition was effective from 7 February 2019 and was settled by the issuing of 105 833 333 Cognition
shares at 120 cents per share, for a purchase consideration of R127 million.

Private Property is one of South Africa’s largest property portals, and has been in operation since 1998.
The company Private Property holds a significant market share in the South African property market.

Private Property is a multi-site marketing property platform that presents property listings, news and advice
to property shoppers and charges property professionals to market to that audience. The revenue growth
for Private Property is driven by increased property listings on its platform which leads to an increased
audience, increased leads and a higher number of successful transactions.

Prior to the acquisition of Private Property from CTP Limited, Caxton and CTP Publishers and Printers
Limited (“Caxton”) was a material (34.57%) shareholder of Cognition. Post the Acquisition, Caxton’s
shareholding in Cognition is currently 63%.
DIVIDEND ANNOUNCEMENT

The Board has declared a gross final dividend of 10 cents per share for the financial year ended 30 June
2019 (2018: 6 cents per share), which is adjusted for withholding tax. The final dividend has not been
included as a liability in these reviewed preliminary condensed consolidated results as it was declared
subsequent to year end. The final dividend for June 2019 is payable to all shareholders on the Register of
Members on Friday, 1 November 2019 October 2019. In terms of the dividends tax, effective 1 April 2012,
the following additional information is disclosed:

-        the local dividend tax rate is 20%;
-        the dividends will be payable from income reserves;
-        the dividend tax to be withheld by the Company amounts to 2 cents per share;
-        therefore the net dividend payable to shareholders who are not exempt from dividends tax amounts
         to 8 cents per share, while the gross dividend payable to shareholders who are exempt from dividend
         tax amounts to 10 cents per share;
-        the issued share capital of the Company at the declaration date comprises 243 449 131 ordinary
         shares; and
-        the Group’s income tax reference number is 9087/450/84/8.


    Declaration date                                    Wednesday, 18 September 2019

    Last day to trade cum dividend                      Tuesday, 29 October 2019

    Date trading commences ex the dividend              Wednesday, 30 October 2019

    Record date                                         Friday, 1 November 2019

    Date of payment                                     Monday, 4 November 2019

Share certificates may not be dematerialised or rematerialised between Wednesday, 30 October 2019 and
Friday, 1 November 2019, both dates inclusive.

The content of this short form announcement is the responsibility of the directors. Shareholders are advised
that this short form announcement represents a summary of the information contained in the full long form
announcement which is available at https://senspdf.jse.co.za/documents/2019/jse/isse/cgn/ye19.pdf and
also published on the Company’s website at
http://www.cognitionholdings.co.za/pages/display/annual_results. Any investment decisions by investors
and/or shareholders should be based on a consideration of the full announcement as a whole and investors
and shareholders are encouraged to review the full announcement, which is available as detailed herein.

Copies of the full announcement may also be requested at the Company’s registered office or the office of
the sponsor, Merchantec Capital, at no charge, during office hours. Any investment decision should be
based on the full announcement released on SENS and published on the Company’s website.


For and on behalf of the Board


Ashvin Mancha                     Mark Smith                          Pieter Scholtz
Chairman                          Chief Executive Officer             Financial Director

Johannesburg
18 September 2019

Business and Registered Office:
Cognition House
Corner of Bram Fischer Drive and Will Scarlet Road
Ferndale, Randburg, 2194
PO Box 3386, Pinegowrie, 2123
Telephone +27-11-293-0000
Fax 086-610-1000

Directors: Ashvin Mancha#* - Chairman, Mark Smith – Chief Executive Officer, Pieter Scholtz - Financial
Director, Gaurang Mooney#* (Botswana), Graham Groenewaldt – Sales Director, Paul Jenkins#*, Roger
Pitt#*, Marc du Plessis#, Piet Greyling#, Trevor Ahier#*, Dennis Lupambo#*
 # Non-executive

* Independent

Company Secretary: Stefan Kleynhans, BA BIuris LLB LLM (Banking Law)/(Corporate Law) ACIS

Auditor: BDO South Africa Incorporated

Transfer Secretaries: Computershare Investor Services Proprietary Limited

Sponsor: Merchantec Capital

Date: 18/09/2019 05:00:00
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