| Tue 8 Dec 2009, 16:49 | | IDE - Ideco Group Limited - Reviewed Condensed Consolidated Financial Results |
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IDE
IDE
IDE - Ideco Group Limited - Reviewed Condensed Consolidated Financial Results
IDECO GROUP LIMITED
(Incorporated in the Republic of South Africa)
Registration number 2001/023463/06
Share Code: IDE & ISIN: ZAE000107579
("Ideco" or "the company" or "the group")
REVIEWED CONDENSED CONSOLIDATED FINANCIAL RESULTS
CONDENSED BALANCE SHEET
Reviewed Audited
R`000 Notes 31 Aug 2009 31 Aug 2008
ASSETS
Non-current assets
Property, plant and equipment 1 10 210 6 828
Investment in associate 2 - 19 075
Other non-current assets 3 58 724 23 337
Deferred tax 7 481 1 829
76 415 51 069
Current assets
Inventories 12 704 11 136
Trade and other receivables 23 894 18 955
Taxation receivable 343 286
Cash and cash equivalents 8 598 12
45 539 30 389
Non-current assets held for sale - 4 335
Total assets 121 954 85 793
EQUITY AND LIABILITIES
Equity
Share capital and premium 21 287 21 287
Retained income 7 494 19 585
28 781 40 872
Liabilities
Non-current liabilities
Long-term borrowings 4 42 996 2 639
Deferred tax 361 -
43 357 2 639
Current liabilities
Current tax payable 325 392
Trade and other payables 20 257 17 687
Current portion of non-current 238 172
liabilities
Bank overdraft 351 2 804
Provisions 1 354 -
Other financial liabilities 5 27 291 21 227
49 816 42 282
Total liabilities 93 173 44 921
Total equity and liabilities 121 954 85 793
Net asset value per share 14,23 20,21
(cents)
Net tangible asset value per (18,33) 7,77
share (cents)
CONDENSED INCOME STATEMENT
Reviewed Audited
year ended 18 months ended
R`000 31 Aug 2009 31 Aug 2008
Revenue 83 076 113 645
Cost of sales (48 806) (80 954)
Gross profit 34 270 32 691
Other income 166 4 406
Operating expenses (45 923) (34 675)
Depreciation (1 105) (1 704)
Amortisation (2 196) (1 281)
Operating loss (14 788) (563)
Investment revenue 287 1 747
Finance costs (4 359) (1 213)
Share of profit of associate 2 023 2 463
company
(Loss)/profit before tax (16 837) 2 434
Taxation credit 4 746 562
(Loss)/profit attributable to (12 091) 2 996
ordinary shareholders
Number of shares
- Issued 202 222 222 202 222 222
- Weighted 202 222 222 127 550 685
Basic (loss)/profit per share (5,98) 2,35
Headline loss per share (cents) (5,69) (0,43)
Calculation of headline loss
(R`000)
Net (loss)/profit attributable to (12 091) 2 996
shareholders
Adjusted for:
Impairment of intangible assets 563 -
Loss/(profit) on sale of assets 12 (3 540)
Headline loss (11 516) (544)
CONDENSED CASH FLOW STATEMENT
Reviewed Audited
year ended 18 months ended
R`000 31 Aug 2009 31 Aug 2008
Cash generated from operations (11 652) (5 687)
Investment revenue 287 1 747
Finance costs (4 359) (1 213)
Dividends paid - (5 000)
Tax paid (541) (16 887)
Net cash flow from operating (16 265) (27 040)
activities
Net cash flow from investing 21 152 (46 270)
activities
Net cash flows from financing 6 152 44 341
activities
Total cash movement for the year 11 039 (28 969)
Cash at the beginning of the year (2 792) 26 177
Total cash at end of period 8 247 (2 792)
CONDENSED STATEMENT OF CHANGES IN EQUITY
Share capital Retained Total
R`000 and premium income equity
Balance at 1 March 2007 * 16 589 16 589
Profit for the eighteen - 2 996 2 996
months
Issue of shares 21 287 21 287
Total changes 21 287 2 996 24 283
Balance at 31 August 2008 21 287 19 585 40 872
Loss for the period - (12 091) (12 091)
Total changes - (12 091) (12 091)
Balance at 31 August 2009 21 287 7 494 28 781
* Less than R1 000.
SEGMENTAL ANALYSIS
Reviewed Audited
year ended 18 months ended
R`000 31 Aug 2009 31 Aug 2008
Revenue
Biometric readers and solutions 58 571 106 702
Secure credentialing services 17 716 4 719
Biometric projects 6 789 2 224
83 076 113 645
Operating profit/(loss)
Biometric readers and solutions 2 107 15 585
Secure credentialing services (1 421) (2 773)
Biometric projects (1 526) (2 067)
Corporate and other (13 948) (11 308)
(14 788) (563)
Revenue and operating results of Ideco AFISwitch was previously recorded as part
of the division "Biometric readers and solutions". The services offered by this
company can be more closely associated with the activities of the new wholly-
owned subsidiary, MIE, and therefore these companies` results are reported in a
new division, "Secured credentialing services".
NOTES TO THE BALANCE SHEET
Reviewed Audited
R`000 31 Aug 2009 31 Aug 2008
1. Property, plant and equipment
Land and buildings 7 002 4 678
Furniture and fixtures 644 650
Motor vehicles 435 506
Office equipment 217 56
IT equipment 1 912 938
10 210 6 828
2. Investment in associate
Shares at cost - 16 612
Share of profit since acquisition - 2 463
- 19 075
3. Other non-current assets
Computer software 4 734 4 585
Trademark 7 700 -
Goodwill on acquisition 28 900 -
Intellectual property rights 1 500 1 500
Right of use 15 890 17 252
58 724 23 337
4. Long-term borrowings
Secured at amortised cost
ABSA Bank 2 396 2 639
Cumulative redeemable preference shares 40 600 -
issued to NEF
42 996 2 639
5. Other financial liabilities
Sagem Security South Africa (Pty) 24 420 20 961
Limited
Kroll Associates (Pty) Limited 2 871 -
Sagem Defence Securite, France - 266
27 291 21 227
COMMENTARY
INTRODUCTION
Set out above are the reviewed condensed consolidated financial results of Ideco
in respect of the year ended 31 August 2009. The group`s financial year was
changed on 16 August 2007 from the end of February to the end of August, and
therefore the comparative results cover an eighteen month period.
BASIS OF PREPARATION
The condensed consolidated financial statements have been prepared using
accounting policies consistent with International Financial Reporting Standards
("IFRS"), and in accordance with the requirements of IAS 34: Interim Financial
Reporting, the South African Companies Act and the JSE Listings Requirements.
The accounting policies adopted in the preparation of the provisional financial
information are consistent with those used to prepare the financial statements
for the eighteen months ended 31 August 2008.
The condensed consolidated financial statements have been reviewed by BDO
Spencer Steward (Johannesburg) Incorporated and their unmodified review report
is available for inspection at the company`s registered office.
FINANCIAL OVERVIEW
The operating loss of R563 000 for the eighteen months ended 31 August 2008
included a once-off profit on the sale of property of R4,1 million, making the
operating loss from trading activities for that period R3,5 million. The
operating loss of R14,8 million for the year ended 31 August 2009 was therefore
effectively R11,3 million higher than the previous 18 month reporting period.
The major contributing factors to the increase in the operating loss were the
lack of biometric reader sales in the government sphere and increased operating
costs of R4 million for the further implementation of the criminal record
checking service, of which the major cost was rental of equipment to be
installed at 350 drivers licence testing stations. Furthermore, the group`s
staff complement, excluding the new acquisition, Kroll Background Screening
(Pty) Limited ("KBS"), which was renamed Managed Integrity Evaluation (Pty)
Limited ("MIE"), increased by approximately 20%, especially in the fields of
research and development as well as sales. The increase in staff complement was
necessary in gearing for the delivery of the Ideco AFISwitch service and new
product research and development to stay abreast of industry development. An
increase of R3,1 million in finance charges and a reduction of R1,5 million in
investment revenue resulted in a loss before tax of R16,8 million compared to a
profit before tax of R2,4 million for the eighteen months ended 31 August 2008.
The basic and headline loss per share are higher than announced in the trading
update on 25 November 2009 on SENS due to a late change to finance charges of
R3,5 million that was under negotiation to be waived, which did not materialise.
Property, plant and equipment increased by R3,4 million, mainly due to the
acquisition of MIE, which includes an unencumbered fixed property of R2,3
million. The big increase in other non-current assets is mainly as a result of
goodwill on the acquisition of MIE. The increase in computer software is also
mainly due to the acquisition of MIE, who own the trade mark NQR software, which
is used to check qualifications in the background screening industry. The right
of use of R15,9 million referred to in note 3 is in respect of a charge by Sagem
Defence and Security SA (Pty) Limited ("Sagem"), which entitles Ideco AFISwitch
to make use of the South African Police Services ("SAPS") Automated Fingerprint
Identification System ("AFIS"). The payment of this amount is part of Ideco
AFISwitch`s agreement with SAPS relating to the criminal background checking
service. This amount will be amortised over the remaining period of the
agreement with SAPS.
Inventories mainly consist of biometric readers held in Ideco Biometric Security
Solutions - the subsidiary focused on the access control and time and attendance
business. The inventory increased by about 14%, which is in line with the
increased revenue of the subsidiary.
The major addition to non-current liabilities is the cumulative redeemable
preference shares issued to the National Empowerment Fund Trust ("NEF") to
finance the acquisition of MIE. The dividend rate of the preference shares is
75% of the prime overdraft rate. The other non-current liability consists of a
bond registered over a property in Centurion, with an outstanding balance of
R2,6 million.
Trade and other payables increased by R2,6 million, mainly as a result of the
acquisition of MIE.
The other current liabilities consist of an amount of R24,3 million due to Sagem
which was taken over in respect of the SAPS AFIS referred to above. The balance
of R2,9 million formed part of the MIE transaction and was repaid in October
2009.
ACQUISITION OF SUBSIDIARY (FORMERLY AN ASSOCIATE)
With effect from 1 July 2009, the group acquired the 70% of the issued share
capital of MIE, not already held by Ideco, for nil consideration. This
transaction has been accounted for using the purchase method of accounting. The
acquisition was effected by way of a share re-purchase by MIE, which re-purchase
was financed by issuing cumulative redeemable preference shares to the value of
R40,6 million to the NEF.
The business combination balances in the table below are provisional and will be
finalised for inclusion in the August 2009 annual report to be issued early in
2010.
The net assets acquired in the transaction, and goodwill arising, are as
follows:
MIE`s
carrying
amount Fair
R`000 before Value Fair
combination adjustment value
Property, plant and equipment 1 703 1 288 2 991
Other non-current assets - 7 700 7 700
Deferred tax 281 281
Trade and other receivables 5 976 5 976
Taxation receivable 298 298
Cash and cash equivalents 20 093 20 093
Trade and other payables (2 967) (2 967)
Long-term liabilities (40 600) (40 600)
Provisions (1 214) (1 214)
(16 430) 8 988 (7 442)
Goodwill arising on acquisition 28 900
Investment in MIE 21 458
Investment in MIE 21 098
Deferred tax 360
Cash consideration paid -
Cash and cash equivalents 20 093
acquired
Net cash outflow arising on (20 093)
acquisition
The goodwill arising on the acquisition of MIE is attributable to the
anticipated profitability of MIE and the anticipated future marketing synergies
from the combination.
The results contributed by MIE for the two months between the date of
acquisition and the balance sheet date were as follows:
R`000
Revenue 6 928
Cost of sales (2 071)
Gross profit 4 857
Other income 2
Operating expenses (2 850)
Depreciation (54)
Amortisation (22)
Operating profit 1 933
Investment revenue 228
Profit before tax 2 161
Taxation (451)
Profit contribution 1 710
If the acquisition had been completed on 1 September 2008, total group revenue
for the period would have been R34,4 million higher and the loss for the period
would have been R6,7 million lower.
No Competition Commission approval was required for the acquisition referred to
above, since MIE`s revenue is below the threshold set by the Competitions Act,
but a competitor of MIE has lodged a complaint with the Competition Commission,
which ruled that the transaction must be reported to the Competition Commission
as a small merger. The required report was submitted to the Competition
Commission on 24 November 2009.
OPERATIONS
Biometric Readers and Solutions
The economic downturn resulted in a slow-down of revenue growth in sales to the
private sector, where the growth rate decreased to 11% compared to the
annualised revenue for the eighteen months ended 31 August 2008. Compared to the
previous reporting period, where sales of biometric readers to the public sector
comprised 25% of segmental revenue, sales to the public sector for the period
under review was less than 1% of segmental revenue.
Secure Credentialing Services
This segment provides fingerprint-based criminal record checks in terms of a
long-term agreement with SAPS as well as background screening services for
employers on existing and prospective employees. The activities of this segment
are conducted in two companies: Ideco AFISwitch (Pty) Limited - offering
criminal record checks and MIE - offering background screening services. This is
the first reporting period when background screening services revenue is
included in the segmental results, as it was acquired as a wholly-owned
subsidiary with effect from 1 July 2009. Previously, Ideco held only 30% of MIE.
Revenue from criminal background checks increased by 177% for the year ended 31
August 2009 compared to the annualised revenue for the eighteen months ended 31
August 2008.
Biometric Projects
Revenue generated by this segment was 4,5 times higher than the annualised
revenue for the eighteen months ended 31 August 2008. The main reason for this
increase is the commencement of the five-year Namibian drivers licence contract
in December 2008.
PROSPECTS
Biometric Readers and Solutions
It is expected that segmental revenue in the private sector will remain constant
until the economic recovery is well underway. Ideco`s certified partners have
however submitted several proposals to their customers for new biometric
applications in respect of risk management and cost control, which could make up
for the lower revenue due to the generally poor economic climate.
Ideco has also been appointed as a sub-contractor to supply biometric components
and systems by several suppliers who are contracted by government for various
security projects. Therefore, management is confident that stronger sales to the
public sector will resume in the year ending 31 August 2010.
Secure Credentialing Services
The criminal record checking service, conducted by Ideco AFISwitch, will
continue to show strong growth. This company has commenced the implementation of
the service to the Department of Transport for Professional Drivers Permits,
which constitute approximately 50% of capacity. The installation of background
checking equipment at the 350 testing stations countrywide has begun and will
continue throughout 2010. The agreement concluded in May 2009 for the management
of more than 300 000 identity profiles will also be implemented during 2010,
further providing predictable annuity revenue flow to the group.
The acquisition of the remaining 70% of MIE will enhance the performance of this
segment for the year ending 31 August 2010. This will be the first reporting
period in which MIE`s full year results will be included in Ideco`s group
results. MIE has an excellent profit and revenue growth history.
Biometric Projects
In addition to the Namibian drivers licence project, Ideco is awaiting the
adjudication of several public sector tenders which, if awarded, will enhance
the results of this segment.
Other Projects and Prospects
Ideco has concluded a three year ticketing agreement with the Bombela Operating
Company in charge of operating the Gautrain service. Ideco won this tender with
its offer of a card ticketing solution on par with similar services in major
cities such as Paris and London. This award signals industry recognition of
Ideco`s solution offerings and expertise, and further boosts prospects of growth
in the company`s sector of activity - identity management and related services.
The group`s biometric solutions for specific sectors such as retail, micro-
lending and credit bureaux are gaining momentum and management is confident that
these sectors will provide solid revenue streams in the near future. The company
is currently negotiating contracts with specific customers for the use of its
technology solutions in these sectors. These contracts are expected to be
concluded and implementation to commence in the year to end August 2010.
Ideco has also concluded a memorandum of understanding with MorphoTrak
Incorporated, the USA subsidiary of Sagem Defence Securite, France to explore
the US market for the establishment of a joint venture to distribute Sagem
biometric scanners in that market. This follows the successes of the Ideco
distribution model in the South African market which appears to have good
resonance with the access control and time and attendance market in the USA as
well. Ideco`s contribution to this exploration has been to transfer two of its
experts into the employ of MorphoTrak for a 12 month period. Initial reports on
the viability of the venture are very promising.
CAPITAL COMMITMENTS
There are no capital commitments that have been approved by the directors as at
the date of this report.
POST BALANCE SHEET EVENTS
During September 2009 Ideco Group acquired a 25% share in a new biometric
venture offering biometric solutions to the health industry. The repayment of
the amount of R24,3 million due to Sagem as detailed in note 5 has been
rescheduled during November 2009. Of this amount, R12,7 million is now repayable
in March 2010 and the balance of R11,7 million is payable in four equal
instalments from 15 September 2010 to 15 December 2010. No interest will accrue
on the outstanding amount.
DIVIDEND
No dividend has been declared for the period.
CORPORATE GOVERNANCE
The directors and senior managers of the company endorse the Code of Corporate
Practices and Conduct as set out in the King II Report on Corporate Governance.
By order of the board
Vhonani Mufamadi H B Aucamp
CEO CFO
CORPORATE INFORMATION
Executive directors:
V Mufamadi (CEO)
H B Aucamp (CFO)
Non-executive directors:
A X Sisulu-Dunstan
M F Kekana
R Troester (German)
Registration number:
2001/023463/06
Registered address:
13 Wellington Road, Parktown, Johannesburg 2193
Postal address:
PO Box 130353, Bryanston 2021
Company secretary:
H B Aucamp
Telephone (011) 745 5600
Facsimile (011) 745 5615
Transfer secretaries:
Computershare Investor Services (Pty) Limited
Legal advisors:
DLA Cliffe Dekker Hofmeyr Inc
Designated advisor:
QuestCo Sponsors (Pty) Limited
www.ideco.co.za
Date: 08/12/2009 16:49:01 Produced by the JSE SENS Department.
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