| Thu 16 Apr 2009, 17:25 | | IQG - IQuad - Preliminary condensed financial statements for year ended 28 |
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IQG
IQG
IQG - IQuad - Preliminary condensed financial statements for year ended 28
February 2009
IQuad Group Limited and its subsidiaries
(Incorporated in the Republic of South Africa)
Registration number 2004/025177/06)
Share code: IQG
ISIN: ZAE000101622
("IQuad", "the company" or "the Group")
Preliminary condensed financial statements for year ended 28 February 2009
Commentary and highlights
Investment incentives
The last six-month period saw a reduction in client payouts received from the
Department of Trade and Industry (DTI) mainly due to a cash constraint within
the DTI. This has resulted in under performance relative to the Group`s
annual budget. However, it has also resulted in a substantial increase in the
pipeline of future revenue from claims at the DTI, to a record level
approximating R27 million (2008: R25 million).
Early indications are that the replacement programme, the Enterprise
Investment Programme (EIP), launched on 21 July 2008, will create
opportunities at least equal to the Small Medium Enterprise Development
Programme which expired in August 2006.
The Group anticipated a slowdown in activity in the motor industry and has
accordingly increased sales and marketing efforts resulting in the
acquisition of new clients in the MIDP division. These new income sources,
coupled with a weaker rand, will partly offset the negative impact of a
contracting motor industry.
The past year saw a substantial increase in the flow of Import Rebate Credit
Certificates through the Group`s internet-based trading platform, resulting
in the budget for broker and administration fees related to the trading of
these instruments being exceeded. A slowdown in income for the year ahead due
to the challenges within the motor industry is however expected.
Global trade services
The increased market volatility and uncertainty in the foreign exchange
markets have created opportunities for the Treasury business unit, and it is
anticipated that the positive trend to outsource, will continue for some
time. The Group expects a decrease in turnover due to tougher market
conditions to be offset by income from new clients.
Substantial growth in the client base in terms of duty draw back and rebate
administration has been experienced during the reported period. This has been
partly facilitated by the launch of the export administrative system,
"Process Assist". It is expected that the implementation of Process Assist
within the existing client base will create efficiencies for the Group and
its clients, thereby increasing mutual value and strengthening client
relationships.
Audit and verification
The BEE Verification business performed below budget which is largely
attributable to a delay in the government`s accreditation process for
verification agencies. Final accreditation is expected within the first
quarter of the new financial year and the Group is confident of a substantial
improvement in the performance of this business unit in the year ahead.
The performance of the Customs audit division was below budget, which can be
expected from time to time due to the project nature of this income source.
However, the pipeline of work at year end is encouraging for the year ahead.
Business development
Both business units, Entrepreneur Survival Solutions ("ESS") and IQuad
Integrated Management Systems in this sector performed below budget.
ESS`s income relating to the Umsobomvu Youth Fund (UYF) has decreased in
comparison with previous years, but has been partly offset by the higher than
expected growth in training opportunities. The recent recapitalisation of the
UYF (announced in the 2009 Budget Speech), coupled with substantial increases
to service voucher values, positions ESS well for the year ahead. This
division will continue to expand geographically.
General comments and prospects
Organic growth prospects
Tougher market conditions continue to hamper organic growth within the
Group`s client base, but new business opportunities are transpiring from our
strategic alliances with complementary service companies and related industry
bodies. Emphasis is being placed on growing the Group`s new client base to
offset pressure from the slowing economy.
Acquisitive growth prospects
Market conditions continue to exert pressure on selling prices and the Group
is well positioned to pursue acquisitions within core business areas when the
opportunity arises. It is believed that a turnaround in market conditions is
some way off and therefore acquisitions will not be aggressively pursued in
the short term.
Focus on cost control without unduly reducing capacity
The executive team has been and continues to be frugal in terms of overhead
costs that are not likely to result in processing efficiencies or improved
market share.
In areas where spare capacity has been identified, resources are being
redeployed, with appropriate cross-training to other areas within the Group,
so that experienced and skilled employees are retained, ready to reverse this
redeployment when the markets recover.
Discontinued operations
Entities deemed to be non-core to the outsourcing model or entities that have
under performed relative to expectations have been closed, sold or disclosed
as held for sale. This streamlining process will continue and the Group plans
to have dealt with all non-core divisions within three months of year end,
allowing management to focus on the core businesses that are performing
satisfactorily.
Consolidated balance sheet
Reviewed Audited
28 Feb 09 29 Feb 08
R000 R000
Assets
Non-current assets 133 688 112 185
Property, plant and equipment 31 230 5 723
Goodwill 95 746 88 892
Other intangible assets 2 842 478
Investments in associates 426 14 474
Investments 401 401
Deferred tax assets 3 043 2 217
Current assets 31 316 36 500
Work in progress 4 083 3 498
Amounts owing by associates 85 113
Loan receivable 113 -
Trade and other receivables 21 901 15 899
Current tax assets 30 575
Cash and cash equivalents 5 104 16 415
Non-current asset held for sale 10 000 -
Total assets 175 004 148 685
Equity and liabilities
Equity and reserves 136 109 130 297
Issued capital 103 868 100 831
Foreign currency translation reserve 30 (168)
Accumulated profits 27 087 25 747
Minority interest 5 124 3 887
Non-current liabilities 12 464 300
Borrowings 10 859 -
Operating lease liability 666 -
Deferred tax liabilities 939 300
Current liabilities 26 431 18 088
Trade and other payables 10 584 14 883
Current tax liabilities 2 402 2 790
Borrowings 12 597 49
Dividend payable 572 -
Provisions 276 366
Total liabilities 38 895 18 388
Total equity and liabilities 175 004 148 685
Consolidated income statement
Reviewed Audited
28 Feb 09 29 Feb 08
R000 R000
Continuing operations
Revenue 80 051 62 287
Cost of services rendered (36 974) (22 982)
Gross profit 43 077 39 305
Other operating income 125 12
Operating expenses (23 598) (14 263)
Operating profit 19 604 25 054
Investment income 4 417 1 727
Share of profits/(losses) of associates 44 (122)
Finance costs (1 421) (488)
Profit before taxation 22 644 26 171
Taxation (8 074) (7 821)
Profit for the year from continuing 14 570 18 350
operations
Discontinued operations
Loss for the year from discontinued (4 482) (1 128)
operations
Profit for the year 10 088 17 222
Attributable to: 10 088 17 222
Minority shareholders 42 305
Equity shareholders of the Company 10 046 16 917
Basic and diluted earnings per ordinary
share (cents)
Continuing operations 51,7 66,7
Discontinued operations (15,8) (1,2)
Total basic and diluted earnings per 35,9 65,5
share
Consolidated statement of changes in equity
Equity share- Minority Total
holders interests equity
R000 R000 R000
Balance at 1 March 2007 89 863 842 90 705
Net profit for the year 16 917 305 17 222
Foreign exchange differences (168) (263) (431)
Issue of share capital 33 668 - 33 668
Treasury shares (3 584) - (3 584)
Share buy-back (4 605) - (4 605)
Dividends (5 681) (500) (6 181)
Minority interest on business - 3 503 3 503
combinations
Balance at 1 March 2008 - Audited 126 410 3 887 130 297
Net profit for the year 10 046 42 10 088
Foreign exchange differences 199 140 339
Treasury shares utilised in 3 036 - 3 036
business combinations
Dividends (8 706) (2 366) (11 072)
Minority interest on business - 3 421 3 421
combinations
Balance at 28 February 2009 - 130 985 5 124 136 109
Reviewed
Consolidated cash flow statement
Reviewed Audited
28 Feb 09 29 Feb 08
R000 R000
Cash flows from operating activities 6 404 10 851
Cash generated from operations 13 688 15 412
Investment income 2 711 1 748
Finance costs (1 521) (778)
Taxation paid (8 474) (5 531)
Cash flows from investing activities (10 785) (23 931)
Acquisition of property, plant and equipment (3 793) (5 229)
Proceeds on disposal of property, plant and 119 19
equipment
Acquisition of intangible assets (1 941) (304)
Proceeds on disposal of intangible assets 163 -
Acquisition of treasury shares - (3 584)
Acquisition of investments - (1)
Proceeds on disposal of associate 200 -
Investment in subsidiaries (5 277) (11 643)
Investment in associates (256) (3 189)
Cash flows from financing activities (19 319) 22 598
Proceeds from issue of shares, net of cash - 33 668
expenses
Amounts advanced to associate (11 913) -
Amounts received from associates 5 -
Share buy-back - (4 605)
Minority shareholders` loans advanced 601 575
Loans receivable advanced - (274)
Loans payable advanced/(repaid) 2 488 (585)
Dividends paid (10 500) (6 181)
(Decrease)/Increase in cash and cash equivalents (23 700) 9 518
Cash and cash equivalents at beginning of year 16 415 6 897
Cash and cash equivalents at end of year (7 285) 16 415
Selected explanatory notes
Basis of preparation and accounting policies
The preliminary condensed financial statements have been compiled in
accordance with IAS 34: Interim Financial Reporting.
The accounting policies and critical accounting estimates and judgements
applied to these financial statements are consistent with those applied for
the year ended 29 February 2008.
The Group has separately identified costs of services rendered and has
reclassified the income statement for the current and comparative year
accordingly.
Independent review
The company`s auditors, PricewaterhouseCoopers, have reviewed the preliminary
condensed consolidated financial statements for the year ended 28 February
2009. Their unqualified report is available for inspection at the registered
office of the company.
Acquisition and disposal of subsidiaries
On 1 March 2008, the Group acquired a 60% interest in Entrepreneurs Survival
Solutions (Pty) Ltd (ESS) for a purchase consideration of R7 951 237. The
purchase price was settled partly by the allocation of 512 820 ordinary
shares to the value of R2 666 664 and the balance was paid for in cash. The
share price was determined with reference to Iquad`s share price on 1 March
2008.
Goodwill of R5 250 765 arose from the acquisition and is considered
attributable to the acceleration of the Group`s strategic diversification
into the lower end of government`s growth initiatives.
ESS and its subsidiaries provide mainly business plans, mentoring and
training solutions to entrepreneurs.
On 1 March 2008, ESS acquired 100% of the interest in Integra Scores (Pty)
Ltd for R750 000 cash.
Goodwill of R1 814 613 that arose from this transaction is attributable to
gaining access to the established policies and procedures required for the
BEE verification agent accreditation process.
On 1 March 2008, the ESS group acquired the minorities` shareholdings of its
existing subsidiaries for a total cash consideration of R956 924. No goodwill
arose on these acquisitions.
On 1 March 2008 the Group acquired a further 20% interest in a 40% held
investment in associate, IQuad Integrated Management Systems (Pty) Ltd (IMS),
bringing Iquad`s interest to 60%.
The purchase consideration for the additional 20% interest of R369 231 was
settled in full by the allocation of 71 006 ordinary shares.
The share price was determined with reference to IQuad`s share price on 1
March 2008.
Additional goodwill of R223 067 is attributable to the expected increase in
market exposure through combined marketing efforts and resulting synergies
within the Group.
IMS specialises in the development, implementation and auditing of management
systems for companies that need to ensure compliance and certification in
line with international standards.
In addition to the above, the Group acquired further interests in existing
subsidiaries during the year. The table below summarises assets acquired on
business combinations as well as changes to minority interest as a result of
increased shareholdings in subsidiaries.
Fair Book
value value
R000 R000
Assets acquired:
Property, plant and equipment 26 759 26 759
Intangible assets 1 433 -
Loans receivable 181 181
Deferred tax assets 150 113
Trade and other receivables 4 663 4 745
Cash and cash equivalents 1 791 1 791
Directors` loans (287) (287)
Borrowings (27 239) (27 785)
Trade and other payables (1 455) (1 405)
Operating lease liability (45) (45)
Tax liability (340) (340)
Current portion of borrowings (14) (14)
Bank overdraft (367) (367)
Net assets acquired 5 230 3 346
Minority interests (3 268) (1 176)
Amounts recognised in equity (228)
Goodwill 9 837
Purchase consideration 11 571
Cash and cash equivalents (1 424)
Amounts not paid yet (466)
Amounts previously recognised as investment in (1 368)
associate
Paid by issue of ordinary shares (3 036)
Net cash outflow on acquisition 5 277
On 1 March the Group disposed of 50% of its shareholding in IQuad Property
Investment (Pty) Ltd for a cash consideration of R150 000, at a Group profit
of R133 870.
The remaining 50% interest was equity-accounted until 1 February 2009 on
which date the Group was granted an option in terms of the shareholders`
agreement to reacquire the shares sold. Although the option has not been
exercised for purposes of IFRS, it has been determined that this constitutes
control and accordingly this investment was consolidated from this date.
A reconciliation of the Group`s goodwill is provided below:
Reviewed Audited
28 Feb 09 29 Feb 08
R000 R000
Balance at beginning of year 88 892 85 761
Additions through business combinations 9 837 3 053
Foreign exchange differences (34) 78
Impairments (2 949) -
Balance at end of year 95 746 88 892
Increase in borrowings
The increased non-current borrowings relate to a mortgage bond in favour of
Absa Bank and are secured over property under construction. The borrowing
costs were capitalised in terms of IAS 23 and had no effect on earnings and
headline earnings per share.
Contingent asset
Future revenue approximating R27 million, to be earned from incentive
applications submitted to regulatory authorities but still awaiting approval
for payment as at financial year end, has not been recognised as income in
these financial statements in accordance with the Group`s accounting policy
on revenue recognition (2008: R25 million).
Subsequent events
No material events have been identified subsequent to the year end of the
Group and up to the date of this report.
Dividends
The directors of IQuad are pleased to announce that they declared a dividend
of 14 cents per share on 15 April 2009 and wish to ensure that shareholders
receive payment thereof as expeditiously as possible in terms of the JSE
Listings requirements.
The salient dates for the payment of this dividend are set out below:
Last day to trade cum-dividend Friday, 8 May 2009
Trading ex-dividend commences Monday, 11 May 2009
Record date Friday, 15 May 2009
Payment date Monday, 18 May 2009
Share certificates may not be dematerialised or rematerialised between
Monday, 11 May 2009 and Friday, 15 May 2009, both days included.
Earnings, dividend and net asset value per share
Reviewed Audited
28 Feb 09 29 Feb 08
Cents Cents
Headline earnings per share
Headline earnings per share from continuing 56,4 66,7
operations
Headline earnings per share from discontinuing (6,0) (1,2)
operations
50,4 65,5
Dividend per share
Interim 11,0 10,0
Final 14,0 20,0
25,0 30,0
Net asset value per ordinary share
Total assets 468,2 461,4
Tangible assets 115,8 135,2
Headline earnings are reconciled to earnings per the income statement as
follows:
Reviewed Audited
28 Feb 09 29 Feb 08
R000 R000
Profit attributable to equity shareholders 10 046 16 917
Goodwill impairments 3 935 -
Impairments of other intangible assets 460 -
Loss/(profit) on sale of property, plant and 31 (5)
equipment
Revaluation of property, plant and equipment (181) -
Impairment of property, plant and equipment - 7
Profit on sale of investments (186) -
Headline earnings for the year 14 105 16 919
Discontinued operations
During the year under review the Group has discontinued certain non-core and
underperforming major lines of business.
At year end these investments have been sold, closed or classified as held
for sale.
Reviewed Audited
28 Feb 09 29 Feb 08
R000 R000
Analysis of the results of discontinued operations
Revenue 1 279 1 111
Impairment of carrying value of associate (1 486) -
Equity-accounted (losses)/profits of associate (1 244) 1 518
Investment income 222 21
Finance costs (100) (301)
Other operating expenses (3 204) (3 502)
Net loss before taxation (4 533) (1 153)
Taxation 51 25
Loss for the year from discontinued operations (4 482) (1 128)
Segment report
The Group adopted IFRS 8 in advance of its effective date, with effect from 1
March 2006.
The Group has four reportable segments within which the Group`s strategic
business units (SBUs) - operating units - fall. The SBUs offer different
services and are managed separately as they require different technology and
marketing strategies.
The summary below describes the operations in each of the Group`s segments:
Investment incentives
Include consulting services aimed at enabling clients to obtain the maximum
benefits and refunds from Government and the Department of Trade and Industry
(DTI) incentive programmes.
Global trade services
Offer import and export business solutions, including customs consulting,
rebate administration, financial market analysis and interest rate and forex
risk management.
Business development
Provide strategic direction, consulting services and management tools to
optimise business systems and processes.
Verification services
Conduct quality assurance, VAT and customs audits, verify BEE compliance and
provides critical certification to qualifying companies.
The identification of one of the operating segments has been redefined in the
current year resulting in the comparative information being reclassified
where necessary.
Operating segments Invest- Global Business Verifi- Total
ment trade develop- cation
incen- services ment services
tives
2009 - Reviewed R000 R000 R000 R000 R000
Results
Revenue - internal 179 - 1 056 - 1 235
Revenue - external 32 621 31 095 12 325 5 277 81 318
Segment profit 14 444 12 076 (3 496) (10) 23 014
before taxation
Investment income 1 250 346 107 152 1 855
Finance costs (342) (259) (793) (249) (1 643)
Depreciation and (163) (263) (34) (22) (482)
amortisation
Share of profits - 19 (1 244) 25 (1 200)
/(losses) of
associates
Taxation 4 423 3 521 (367) 232 7 809
Assets and
liabilities
Segment assets 17 162 17 134 8 856 1 926 45 078
Investments in - 218 10 178 31 10 427
associates
Total segment 17 162 17 352 19 034 1 957 55 505
assets
Segment 13 188 9 902 9 087 2 752 34 929
liabilities
Operating segments Invest- Global Business Verifi- Total
ment trade develop- cation
incen- services ment services
tives
2008 - Audited R000 R000 R000 R000 R000
Results
Revenue - external 29 586 26 720 1 226 5 866 63 398
Segment profit 14 106 8 904 (611) 2 887 25 286
before taxation
Investment income 1 130 446 21 219 1 816
Finance costs (316) (230) (112) (106) (764)
Depreciation and (186) (332) (31) (16) (565)
amortisation
Share of profits - 5 1 527 - 1 532
of associates
Taxation 3 754 3 391 (435) 931 7 641
Assets and
liabilities
Segment assets 15 388 21 204 1 027 4 774 42 393
Investments in - 5 12 897 - 12 902
associates
Total segment 15 388 21 209 13 924 4 774 55 295
assets
Segment 9 502 7 669 2 684 2 857 22 712
liabilities
Reviewed Audited
28 Feb 09 29 Feb
08
Segmental reconciliations R000 R000
Revenue reconciliation
Total revenue for reportable segments 82 553 63 398
Unallocated revenue 3 831 5 260
Elimination of intersegment revenue (1 235) -
Elimination of corporate revenue (3 819) (5 260)
Discontinued operations disclosed separately (1 279) (1 111)
Group revenue as per income statement 80 051 62 287
Investment income reconciliation
Total investment income for reportable segments 1 855 1 816
Unallocated investment income 4 093 1 083
Elimination of intergroup investment income (1 643) (1 151)
Add profit on disposal of subsidiary 134 -
Add profit on disposal of associate 200 -
Discontinued operations disclosed separately (222) (21)
Group investment income as per income statement 4 417 1 727
Finance costs reconciliation
Total finance costs for reportable segments (1 643) (764)
Unallocated finance costs (1 521) (852)
Elimination of intergroup finance costs 1 643 827
Discontinued operations disclosed separately 100 301
Group finance costs as per income statement (1 421) (488)
Depreciation and amortisation reconciliation
Total depreciation and amortisation for reportable (482) (565)
segments
Unallocated depreciation and amortisation (647) (99)
Group depreciation and amortisation (1 129) (664)
Profit reconciliation
Total profit before tax for reportable segments 23 014 25 286
Unallocated profits 17 720 16 204
Elimination of intergroup profits (22 623) (16
472)
Discontinued operations disclosed separately 4 533 1 153
Group profit before tax per income statement 22 644 26 171
Assets reconciliation
Total assets for reportable segments 55 505 55 295
Unallocated assets 178 790 125 982
Elimination of intergroup assets (150 817) (119
084)
Goodwill created on consolidation 91 526 86 492
Group assets per balance sheet 175 004 148 685
Liabilities reconciliation
Total liabilities for reportable segments 34 929 22 712
Unallocated liabilities 51 811 7 403
Elimination of intergroup liabilities (47 845) (11
727)
Group liabilities as per balance sheet 38 895 18 388
Geographical segments Local Foreign Total
2009 - Reviewed R000 R000
Non-current assets 130 244 - 130 244
Revenue 80 951 379 81 330
2008 - Audited
Non-current assets 109 066 501 109 567
Revenue 63 319 79 63 398
Transactions with individual clients did not amount to 10% or more of the
Group`s total revenue.
For and behalf of the board
Trevor Hayter Frans Botha
(Chief Executive Officer) (Financial Director)
16 April 2009
Port Elizabeth
Registered Office: 5 Mangold Street, Newton Park, Port Elizabeth, 6045
Directors: TB Hayter (CEO), A da Costa (Chairman)# *, F Swart #, DM Edwards,
S Totaram #, FJ Botha, ZL Combi #, M Shaik Amod # *
# Non executive * Independent
Transfer Secretaries: Computershare Investor Services (Pty) Ltd
Auditors: PricewaterhouseCoopers Inc
Designated Advisor: PSG Capital (Pty) Ltd
Date: 16/04/2009 17:25:43 Produced by the JSE SENS Department.
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