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MMG
MMG
MMG - Micromega - Abridged audited group results for the year ended 31 December
2007
MICROmega Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1998/003821/06
Share code MMG ISIN ZAE000034435
("Micromega" or "the Company")
ABRIDGED AUDITED GROUP RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007
Increase In Revenue 53%
Increase In Headline Earnings Per Share 34%
Increase In Attributable Profits Per Share 33%
Increase In Net Asset Value Per Share 31%
ABRIDGED GROUP INCOME STATEMENTS
Audited Audited
year year
ended ended
31 December 31 December
2007 2006
Restated
R(`000) R(`000)
Revenue 483 174 315 062
Cost of sales (312 073) (165 237)
Gross profit 171 101 149 825
Other income 5 784 1 688
Other expenses 2 (122 531) (111 275)
Operating profit 54 354 40 238
Net finance income 1 798 4 611
Share of (losses) / profits of associates (162) 140
Profit before taxation 55 990 44 989
Taxation expense (14 400) (14 205)
Profit for the year 41 590 30 784
Attributable to:
Ordinary Shareholders 40 401 29 703
Minority Shareholders 1 189 1 081
Reconciliation of headline earnings
Net profit attributable to ordinary shareholders 40 401 29 703
(Profit)/loss on disposal of property,
plant and equipment (114) 65
Profit on disposal of listed investments (464) -
Income from write off of loan accounts (77) -
Profit on sale of subsidiary 3 (2 559) -
Impairment of intangible assets 4 122 -
Impairment of investments 5 32 500 -
Impairment of loan 6 (28 959) -
Headline earnings 40 850 29 768
Headline earnings per share (cents) 41.91 31.35
Attributable earnings per share (cents) 41.45 31.28
Fully diluted earnings per share (cents) 40.96 30.69
Weighted average number of shares (000`s) 97 464 94 971
Fully diluted weighted average number of 98 644 96 786
shares (000`s)
Total number of shares in issue (000`s) 98 145 96 326
ABRIDGED GROUP BALANCE SHEETS
Audited Audited
year year
ended ended
31 December 31 December
2007 2006
Restated
R(`000) R(`000)
ASSETS
Non-current assets
Property, plant and equipment 25 197 20 252
Intangible assets 59 762 50 306
Deferred tax 7 907 8 528
Investments 8 099 6 642
Loans receivable 3 720 3 698
Total non-current assets 104 685 89 426
Current assets
Inventories 39 278 18 298
Trade and other receivables 81 668 48 412
FEC asset 186 -
Current portion of loans receivable 168 -
Cash and cash equivalents 52 640 57 255
Total current assets 173 940 123 965
TOTAL ASSETS 278 625 213 391
EQUITY AND LIABILITIES
Equity
Share capital 194 120 188 131
Non-distributable reserves 4 945 2 599
Accumulated losses (9 644) (49 045)
Total equity attributable to equity holders of
the company 189 421 141 685
Minority interests 4 262 3 073
Total equity 193 683 144 758
Non-current liabilities
Loans and borrowings 5 812 10 994
Deferred tax 1 324 1 107
Total non-current liabilities 7 136 12 101
Current liabilities
Trade and other payables 57 886 35 491
FEC liability - 108
Provisions 450 1 625
Current portion of loans and borrowings 12 257 11 320
Taxation payable 5 868 6 394
Bank overdraft 1 345 1 594
Total current liabilities 77 806 56 532
TOTAL EQUITY AND LIABILITIES 278 625 213 391
Net asset value per share (cents) 197.34 150.28
Net tangible asset value per share (cents) 136.45 98.05
ABRIDGED GROUP CASH FLOW STATEMENTS
Audited Audited
year year
ended ended
31 December 31 December
2007 2006
Restated
R(`000) R(`000)
Cash generated by operations 56 696 46 839
Movement in working capital (17 748) (7 169)
Net finance income 1 705 4 146
Dividends received 6 11
Taxation paid (13 396) (11 265)
Net cash generated from operating activities 27 263 32 562
Net cash utilised in investing activities (33 739) (12 815)
Treasury shares sold / (repurchased) 2 550 (5 931)
Deferred vendor loans raised / (repaid) 1 825 (4 496)
Loans (repaid) / raised (2 265) 87
Net cash generated from / (utilised in)
financing activities 2 110 (10 340)
Net (decrease) / increase in cash and cash
equivalents (4 366) 9 407
Represented as follows:
Cash and cash equivalents at beginning of the year 55 661 46 254
Cash and cash equivalents at end of the year 51 295 55 661
Net (decrease) / increase in cash and cash
equivalents (4 366) 9 407
ABRIDGED GROUP STATEMENTS OF CHANGES IN EQUITY
Share Share Share- Revalu- Foreign Deal Accum-
capital premium based ation currency diffe- ulated
payment reserve transla- rences loss
reserve tion reserve
reserve
R(`000) R(`000) R(`000) R(`000) R(`000) R(`000) R(`000)
Balance at 1 929 181 723 5 061 1 383 - - (78 472)
January 2006
as previously
disclosed
Correction of 2 - 178 (4 447) - - - (276)
errors
Restated balance 929 181 901 614 1 383 - - (78 748)
at 1 January 2006,
net of tax
Movement in minor-
ity interests on
restructuring
Revaluation of 452
property, plant
and equipment,
net of tax
Realisation of (42)
non-distributable
reserve
Issue of share 51 11 188
capital
Share issue (46)
expenses
Treasury shares (17) (5 915)
repurchased
Employee share 40 192
options
Recognised direc- 963 187 168 806 1 793 - - (78 748)
tly in equity
Profit for 29 703
the year
Balance at 31 963 187 168 806 1 793 - - (49 045)
December 2006
Balance at 1 963 186 950 6 033 1 793 - - (48 570)
January 2007
as previously
disclosed
Correction of 2 - 218 (5 227) - - - (475)
errors
Restated balance 963 187 168 806 1 793 - - (49 045)
at 1 January 2007,
net of tax
Foreign currency 2
Translation diff-
erences
Revaluation of 697
property, plant
and equipment,
net of tax
Creation of non- 1 000 (1 000)
distributable re-
serve for deal
differences
Issue of share 12 3 391
capital
Share issue (9)
expenses
Treasury shares 7 2 543
sold
Employee share 45 647
options
Recognised direc- 982 193 138 1 453 2 490 2 1 000 (50 045)
tly in equity
Profit for 40 401
the year
Balance at 31 982 193 138 1 453 2 490 2 1 000 (9 644)
December 2007
ABRIDGED GROUP STATEMENTS OF CHANGES IN EQUITY CONTINUED
Total Minori- Total
Attrib- ty int- Equity
utable erest
to ord-
nary
share-
holders
R(`000) R(`000) R(`000)
Balance at 1 110 624 - 110 624
January 2006
as previously
disclosed
Correction of 2 (4 545) - (4 545)
errors
Restated balance 106 079 - 106 079
at 1 January 2006,
net of tax
Movement in minor- - 1 992 1 992
ity interests on
restructuring
Revaluation of 452 452
property, plant
and equipment,
net of tax
Realisation of (42) (42)
non-distributable
reserve
Issue of share 11 239 11 239
capital
Share issue (46) (46)
expenses
Treasury shares (5 932) (5 932)
repurchased
Employee share 232 232
options
Recognised direc- 111 982 1 992 113 974
tly in equity
Profit for 29 703 1 081 30 784
the year
Balance at 31 141 685 3 073 144 758
December 2006
Balance at 1 147 169 3 073 150 242
January 2007
as previously
disclosed
Correction of 2 (5 484) (5 484)
errors
Restated balance 141 685 3 073 144 758
at 1 January 2007,
net of tax
Foreign currency 2 2
Translation diff-
erences
Revaluation of 697 697
property, plant
and equipment,
net of tax
Creation of non- - -
distributable re-
serve for deal
differences
Issue of share 3 403 3 403
capital
Share issue (9) (9)
expenses
Treasury shares 2 550 2 550
sold
Employee share 692 692
options
Recognised direc- 149 020 3 073 152 093
tly in equity
Profit for 40 401 1 189 41 590
the year
Balance at 31 189 421 4 262 193 683
December 2007
NOTES TO THE ABRIDGED GROUP FINANCIAL INFORMATION
1. Basis of preparation
The abridged audited results for the year ended 31 December 2007 have been
prepared in accordance with International Financial Reporting Standards
(IFRSs)and its interpretations issued by the International Accounting
Standards Board (IASB), JSE Limited Listing Requirements and Companies Act of
South Africa.
2. Correction of errors
2.1 Business combinations
The group re-assessed the values attributed to identifiable assets and
liabilities arising from the business combinations which were made in 2005
in terms of a more detailed purchase price allocation valuation model as
required by IFRS 3 - Business combinations. This correction has been
applied to the acquisition of BTM Manufacturing (Proprietary) Limited and
MECS Africa (Proprietary) Limited.
The effect of this change in error is as follows:
MECS Afri- BTM Manuf- Total
ca (Pty) acturing
Ltd (Pty) Ltd
R(`000) R(`000) R(`000)
Income statement
Effect on years before 01 January 2006
Accumulated loss as previously stated - - (78 472)
at 31 December 2005
Amortisation of intangible assets (41) (121) (162)
Deferred tax effect 12 35 47
Accumulated loss as restated at 31 (78 587)
December 2005
Balance sheet effect
Property, plant and equipment - (4 000) (4 000)
Goodwill 2 860 1 607 4 467
Intellectual property (2 500) (3 750) (6 250)
Trademarks - (3 000) (3 000)
Brand names 1 170 4 990 6 160
Customer relationships (3 216) 1 337 (1 879)
Deferred tax 1 657 2 730 4 387
Accumulated loss 29 86 115
Income statement
Effect of year ended 31 December 2006
Profit as previously stated for the 29 902
year ended 31 December 2007
Amortisation of intangible assets (162) (729) (891)
Deferred tax effect 47 210 257
Restated profit for the year ended 31 29 268
December 2006
2.2 Share-based payments
The group historically used the intrinsic method to value share-based
expenditure. The method used to value share-based expenditure has been
changed to the fair value model as required by IFRS 2 - Share-based
payments.
The effect of this change in error is as follows:
Group
R(`000)
Income statement
Effect on years before 01 January 2006
Accumulated loss as previously stated (78 587)
at 31 December 2005 after IFRS 3
correction
Reduction in share-based expenditure 4 269
Accumulated loss as restated at 31 (74 318)
December 2005
Effect of year ended 31 December 2006
Profit as previously stated for the 29 268
year ended 31 December 2007 after
IFRS 3 correction
Reduction in share-based expenditure 740
Restated profit for the year ended 31 30 008
December 2006
Balance sheet effect
Share premium (178)
Share-based payment reserve 4 447
Accumulated loss (4 269)
2.3 Deferred taxation
The company had previously treated the impairment of loans receivable as a
temporary difference and had raised a deferred tax asset at the capital
gains tax rate. This has now been corrected to a permanent difference as
no disposal took place until such time as the loan accounts are written
off permanently.
The effect of this change in error is as follows:
Group
R(`000)
Income statement
Effect on years before 01 January 2006
Accumulated loss as previously stated (74 318)
at 31 December 2005 after IFRS 3 and
IFRS 2 corrections
Reduction in deferred tax asset (4 430)
Accumulated loss as restated at 31 (78 748)
December 2005
Effect of year ended 31 December 2006
Profit as previously stated for the 30 008
year ended 31 December 2007 after
IFRS 3 and IFRS 2 corrections
Reduction in deferred tax asset (305)
Restated profit for the year ended 31 29 703
December 2006
Balance sheet effect
Deferred tax asset (4 735)
Accumulated loss 4 735
2007 2006
Restated
R(`000) R(`000)
3. Profit on sale of subsidiary
On 1 January 2007, the group acquired all the 2 559 -
Shares in Lwanelerato (Proprietary) Limited and
disposed of the company immediately. The group
realised a profit of R2 558 588, net of tax from
this disposal.
4. Impairment of intangible assets
The group impaired the intangible asset value that 122 -
arose on the acquisition of Channer Batteries
(Proprietary) Limited down to the recoverable amount
of the cash generating unit.
5. Impairment of investment
During the year the company acquired 100% of 32 500 -
Mzimkhulu Financial Investments (Proprietary) Limited
in terms of a deed of pledge on the transaction
entered into with them in 2005. The assets held by
Mzimkhulu were impaired to the recoverable amount
of expected future economic benefits.
6. Impairment of loan
The Mzimkhulu loan was secured by a deed of pledge (28 959) -
of 50% of the issued share capital of MICROmega
Revenue Management Solutions (Proprietary) Limited.
Due to the acquisition made during the year all
amounts raised in prior years as provisions on the
loan accounts was reversed.
Commentary on results
We are pleased to report a 34% increase in headline earnings per share to
42 cents, a 53% increase in revenue and a 33% growth in attributable
profit per share. The group`s balance sheet continues to strengthen with
an increase of 31% in net asset value to 197 cents per share and an
increase of 39% in net tangible asset value to 136 cents per share.
Of the 34% increase in headline earnings per share 14% is attributed to
acquisitions and 20% to organic growth. The organic growth was negatively
impacted by costs associated with the establishment of new business
opportunities during the last quarter of 2007.
Our philosophy of affording our shareholders an opportunity to participate
across a broad base of economic sectors remains at the forefront of our
growth strategy. We remain convinced that our focus on diversification in
the domestic economy will deliver the sustainability in earnings growth
that we seek to achieve. We are undergoing a "change in shape" within the
sectors that we are invested as well as greater uncertainty in the broader
economic factors that impact on those sectors. In both instances we have
been able to adapt to changing circumstances in a manner that both grows
and protects our earnings without compromising future earnings growth.
Our acquisitions and organic growth have to date been funded out of
operating cash flows. Consequently the group`s earnings have not been
affected by rising interest rates. Current cash reserves and strong cash
based earnings will continue to shield the balance sheet against any
further adverse interest rate movements and we anticipate that we will
continue to have the capacity to grow earnings without undue exposure to
debt funding.
Whilst we do import certain products within our automotive sector we are
price makers on these specific items which shields us against Rand
volatility. We have consequently managed to maintain our gross margins on
those products.
Cash generated from operating activities has not improved year on year.
This is specifically attributed to our decision to increase our investment
in steel based inventory as well as the cyclical increase in trade
receivables. The decision to increase steel based stock holdings was
motivated primarily by the anticipated escalation in the cost of steel,
whilst the movement in trade receivables year on year is a result of the
increased uptake of products and services from our support services sector
in November and December.
Sector Analysis
Our philosophy of diversifying our activities to manage sustainable
earnings growth without dependency on a specific sector of the economy has
proved successful.
Automotive
The businesses within this sector are:
Deltec Power Distributors;
Lubrication Equipment;
BTM Manufacturing; and
Automobile Radio Dealers Association
This sector contributed 30% to total headline earnings. The growth in
performance and contribution is largely attributed to the diverse nature
of the businesses within it. We provide products and services to both the
parts and accessories and the aftermarket markets: consequently we have
not been impacted by the slow down in the growth in new car sales that was
experienced in the domestic market during the period under review. The
need to continue to enhance our distribution capabilities remains
important to the success of this sector and we anticipate having further
investments in this capability.
Information Technology
The businesses within this sector are:
MICROmega Revenue Management Solutions;
Intermap; and
Sebata Municipal Solutions
This sector contributed 23% to total headline earnings. We anticipated a
far higher growth in earnings from this sector which specializes in the
provision of services to public sector South Africa. Unfortunately the
client procurement cycle during 2007 was the slowest we have experienced
since the introduction of this sector to the group. We are committed to
this sector and have positive views on growth opportunities within it.
Recognition of the need for further diversification has resulted in the
establishment of two new businesses that focus primarily at providing
services to the large network users in the public and private sector.
These businesses are Stable-Net and MICROmega Technologies; a brief
summary of both is given below.
Support Services
The businesses within this sector are:
NOSA; and
Mecs Africa
This sector contributed 27% to total headline earnings and continues to
present a high growth opportunity for the group. The current market demand
for occupational health, safety and environmental services provided by
NOSA bodes well. The demand for skills in the engineering and construction
sector, and the fluidity with which these skills transfer themselves
within the domestic market continues to present opportunities to Mecs
Africa, our human resource outsourcing business.
Financial Services
The only company remaining within this sector is MICROmega Securities
which contributed 20% to total headline earnings. This sector continues to
leverage it`s earnings off the volatility in the foreign exchange, bond
and derivative markets. The business has renewed its ten year trade and
co-operation agreement with London based Tullett Prebon for a further five
years commencing 1 January 2008 and this will ensure sustainable access to
both domestic and international markets. The sector has recently
established brokerage services into the rest of Africa which will ensure
an earnings diversification in future periods.
Acquisitive growth
During the period under review we made two acquisitions, namely
Lubrication Equipment ("Lubrequip") and Automobile Radio Dealers
Association ("ARDA").
Lubrequip is an industry leader in workshop lubrication installations,
special lubrication projects and lubrication product supplies. Since its
inception in 1962, Lubrequip has built up an enviable reputation for being
a quality supplier of equipment to mines, the automotive industry, the
agricultural sector and general industry. Its vast and expansive product
range covers the full spectrum from grease nipples to sophisticated
centralised lubrication systems for workshops.
ARDA is a distributor of air conditioning, car audio as well as automotive
security to fitment centres throughout Southern Africa. The business
started in 1966 as a platform of information shared amongst ten automotive
fitment centres. In 1973 these fitment centres formed the Automobile Radio
Dealers Association. The modus operandi of the association was to collate
bulk orders from the members and distribute the goods at advantageous
prices to them. Due to the success and size of the operations by 1989 it
had evolved into a broad based automotive distributorship based in all
major centres in South Africa.
New business opportunities
During the period under review we established three new businesses.
Stable-Net has been appointed as a Centre of Excellence for Cisco in
emerging markets. Stable-Net provides business network optimisation
services which ensure that the investment in information and
communications technology by an organization meets its specific business
needs.
MICROmega Technologies ("MMT") is a specialist distributor of business
network performance solutions. The products and services distributed by
MMT range from hardware devices, software-based analytical and management
systems and associated services. These tools are used to optimise
technology resources within an organisation, including data centres,
communications networks and business applications.
MICROmega African Money Brokers was established to provide market
participants on the African continent with access to transparent spot and
forward foreign exchange prices. The business will initially provide a
platform to match the buyers and sellers in specific currencies at the
best available price on a name give up basis.
The aforementioned businesses were all established in the last quarter of
2007 and made no contribution to headline earnings for the period under
review. The full economic impact of commissioning these businesses has
been taken against earnings in 2007.
Post year end activities
As reported to shareholders in a previous announcement, we are continuing
with our strategy to strengthen our strategic position in the automotive
sector. Subject to Competition Commission approval we have acquired a tier
one original equipment market manufacturer, namely Kolbenco (Pty) Ltd.
This business in the sole manufacturer of automotive pistons in South
Africa, manufacturing and exporting approximately one million units per
annum. Our confidence in Government`s continued commitment to the motor
industry development program ("MIDP") and prospects of significant
domestic investment in the industry will undoubtedly ensure sustainable
growth not only in this business but in the sector as a whole.
We would like to take this opportunity to thank our sponsoring brokers
Investec, our attorneys Routledge Modise and our newly appointed auditors
KPMG for their contribution and commitment to the group during the
reporting period.
To our customers we remain focused on ensuring you receive a professional
service and quality products and we thank you for your ongoing loyalty.
To our shareholders we remain committed to our growth strategy whilst
preserving the integrity of our balance sheet.
Report of the auditors
KPMG Inc has issued an unmodified auditor`s report on the group annual
financial statements for the year ended 31 December 2007 from which the
abridged group annual financial statements are derived. For a better
understanding of the Group`s financial position at 31 December 2007 and
its financial performance and cash flows for the year then ended, the
abridged group annual financial statements should be read in conjunction
with the group annual financial statements from which the abridged
financial statements are derived.
By order of the Board
Directors: IG Morris (Chairman), RC Lewin (Non-Executive), ES Mpanza (Non-
Executive), DM Carson (Non-Executive)
Company Secretary: DJ Case
Auditors: KPMG Inc.
Transfer Secretaries: Computershare Investor Services (Pty) Ltd
Sponsor Broker: Investec Bank Limited
Attorneys: Routledge Modise
25 March 2008
Date: 25/03/2008 17:30:27 Produced by the JSE SENS Department.
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