| Wed 17 Feb 2010, 10:35 | | SBG - Simeka - Unaudited condensed consolidated - Interim financial |
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SBG
SBG
SBG - Simeka - Unaudited condensed consolidated - Interim financial
statements for the six months ended 30 November 2009
Simeka Business Group Limited
(Incorporated in the Republic of South Africa)
(Registration number 2003/012583/06)
JSE code: SBG ISIN: ZAE000074878
("Simeka")
Unaudited condensed consolidated Interim financial statements for the six
months ended 30 November 2009
Highlights
EBITDA R50,3 million
Revenue R372,3 million
Headline earnings R22,0 million
Cash reserves up to R97,2 million
NAV per share 54,9 cents
Consolidated condensed statement of comprehensive income
Unaudited Reviewed Audited
Six Six Year
months to months to ended
30 30 31 May
November November 2009
2009 2008 R`000
R`000 R`000
Turnover 372 307 393 044 752 070
Cost of sales (218 798) (205 992) (397 930)
Gross profit 153 509 187 052 354 140
EBITDA 50 325 80 322 125 376
Depreciation (6 881) (4 595) (7 727)
Amortisation of intangibles (2 091) (1 660) (4 183)
Impairment of goodwill (178 625) - (10 037)
Net finance costs (11 666) (12 511) (20 909)
Income from associate 160 2 065 3 499
(Loss)/Profit before taxation (148 778) 63 620 86 019
Income tax expense (10 141) (16 064) (29 755)
Profit for the period (158 919) 47 556 56 264
Other comprehensive income for the period, net 294 (813) (7 044)
of tax
Total comprehensive income for the period (158 625) 46 743 49 220
Profit attributable to:
Owners of the parent (159 558) 42 732 47 482
Non-controlling interest 639 4 824 8 782
Total comprehensive income attributable to:
owners of the parent (159 264) 41 919 40 438
Non-controlling interest 639 4 824 8 782
Headline earnings 22 091 42 617 57 784
Headline earnings calculation
Profit attributable to equity holders of (159 558) 42 732 47 482
parent adjusted for:
Loss on sale of subsidiary 1 611 (33) 30
Profit on sale of fixed assets (10) (83) 145
Impairment of goodwill 178 625 - 10 127
Impairment of loans 1 423 - -
Headline earnings 22 091 42 617 57 784
Number of shares (`000)
-Weighted in issue 491 629 483 546 520 031
-Weighted in issue and to be issued 551 629 524 942 547 069
- Total number of shares in issue 549 885 590 974 545 771
Headline earnings per share 4.49 8.80 11.11
Diluted headline earnings per share 4.00 8.10 10.56
Earnings(loss) per share (cents) (32.45) 8.80 9.13
Diluted earnings(loss) per share (28.92) 8.10 8.68
Consolidated condensed statement of financial position as at 30 November 2009
Unaudited Reviewed Audited
30 Nov 30 Nov 31 May
2009 2008 2009
R`000 R`000 R`000
ASSETS
Non-current assets 358 485 515 615 529 205
Property, plant and equipment 37 868 32 823 36 934
Goodwill 228 788 409 306 408 724
Intangible assets 48 302 45 162 50 247
Other financial assets 3 519 3 598 4 948
Investments - 306 346
Investment in associate 10 777 12 756 10 384
Deferred taxation 29 231 11 664 17 622
Current assets 275 433 314 858 248 299
Inventories 7 777 13 404 7 008
Trade and other receivables 163 937 201 000 142 145
Other financial assets 1 824 2 620 2 186
Operating lease asset 113 - 83
Taxation receivable 4 590 3 823 4 791
Cash & cash equivalents 97 192 94 011 92 086
Total assets 633 918 830 473 777 504
EQUITY AND LIABILITIES
Equity attributable to the owners of the 301 782 508 238 467 180
parent
Share capital 252 370 296 453 252 370
FCTR (5 699) 238 (5 993)
Retained earnings 7 545 162 353 167 103
Amounts due to vendors 47 566 49 194 53 700
Non-controlling interest 8 334 4 189 15 036
Total equity 310 116 512 427 482 216
Non-current liabilities 155 410 134 152 128 204
Other financial liabilities 138 079 122 072 111 531
Finance lease obligation 1 629 1 397 1 323
Deferred taxation 15 702 10 683 15 350
Current liabilities 168 392 183 894 167 084
Vendor liabilities - - 5 385
Other financial liabilities 14 153 25 664 33 970
Trade and other payables 143 145 150 025 124 528
Operating lease liability 310 946 1 951
Current tax payable 10 784 7 259 1 250
Total equity and liabilities 633 918 830 473 777 504
Net asset value per share (cents) 54.88 86.0 85.6
Net tangible asset value per share (cents) 4.49 9.10 1.5
Consolidated condensed cash flow statement
Unaudited Reviewed
Six Six Audited
months to months to Year
30 30 ended 31
November November May
2009 2008 2009
R`000 R`000 R`000
Cash flows from operating activities
Cash generated from operations 43 666 77 215 158 447
Investment income 1 392 7 339 5 510
Taxation paid (12 391) (15 221) (54 531)
Finance costs (13 058) (15 737) (26 452)
Cash flows from operating activities 19 609 53 596 82 974
Cash flows from investing activities (5 809) (23 202) (12 152)
Cash flows from financing activities (8 694) (7 408) (49 761)
Net increase in cash and cash equivalents 5 106 22 986 21 061
Cash and cash equivalents at beginning of 92 086 71 025 71 025
the period
Cash and cash equivalents at end of the 97 192 94 011 92 086
period
Consolidated condensed statement of changes in equity
Unaudited Reviewed Audited
Six months Six months Year ended
to 30 to 30 31 May
November November 2009
2009 2008 R`000
R`000 R`000
Capital and reserves - opening balances 482 216 343 655 343 655
Shares issued - 106 635 101 516
Treasury shares - - (6 872)
Payment of vendor liabilities (4 500) (33 800) (33 800)
Adjustment to vendor liabilities (1 634) - -
Share repurchase - - (31 859)
Acquisition of subsidiaries and - 49 194 53 700
businesses
Dividend paid to non-controlling (7 341) 4 824 6 889
interest
Foreign currency translation reserve 294 (813) (7 044)
Transaction costs written off to share - - (233)
premium
Net profit for period (158 919) 42 732 56 264
Capital and reserves 310 116 512 427 482 216
Note:
Weighted number of shares in issue and to be issued includes shares for all
acquisitions weighted to warranted profits in accordance with the company`s
contractual commitment to issue such shares during the relevant accounting
period.
Comments
Basis of preparation
The unaudited condensed consolidated interim financial statements have been
prepared in compliance with the Companies Act of South Africa, 1973,
International Financial Reporting Standards (IFRS), International Accounting
Standard (IAS) 34 Interim Financial Reporting and the JSE Listing
Requirements and that are relevant to its operations and has been effective
since the annual reporting period ending 31 May 2009.
Significant accounting policies
The unaudited condensed consolidated interim financial statements have been
prepared under the historical cost convention, save for certain financial
instruments which are measured at fair value.
The accounting policies, presentation and methods of computation applied in
preparation of these unaudited condensed consolidated interim financial
statements are consistent with those applied in the group`s audited financial
statements for the year ended 31 May 2009 save for the new application of
IFRS 8: Operating Segments and IAS 1: Presentation of Financial Statements -
Revised.
IFRS 8 replaces IAS 14: Segment Reporting and requires an entity to adopt a
"management approach" to reporting the financial performance of its segments.
In accordance with the requirements of IFRS 8 the segmental reporting is now
prepared based on the business units as reported internally by management.
The group has complied with the revised naming conventions as required by IAS
1 and reports one Statement of Comprehensive Income. In terms of IAS 1
certain items reported in the Statement of Changes in Equity are now
disclosed in the Statement of Comprehensive Income.
The preparation of the results required the use of estimates and assumptions
that affect the values of assets and liabilities at the reporting date.
Although these estimates are based on management`s best knowledge of current
events and actions that the group may undertake in the future, actual results
may differ from those estimates.
Introduction
The directors of Simeka present the results for the six months ended 30
November 2009 ("the period").
The unaudited condensed consolidated interim financial statements were
authorised for issue by the directors on 17 February 2010.
Group profile
Simeka is a leading black empowered OUTSOURCING, BUSINESS SUPPORT SERVICES
and TECHNOLOGY group with offices throughout South Africa, in Nigeria and
Mozambique. Simeka has retained a formidable skills pool with a depth of
experience and domain expertise.
Simeka is able to offer bespoke client solutions through its niche services
within its major brands, which can also be combined for a more effective
integrated solution.
Black Economic Empowerment ("BEE")
Simeka is majority black-owned and managed, with the majority of the group`s
executive directors being black. This BEE platform offers the group a
competitive advantage and is a key contributor to ongoing growth.
Notwithstanding that the group already enjoys this strong BEE profile, Simeka
remains committed to continually enhancing its credentials in respect of all
aspects of scorecarding.
Operational overview
Despite the global economic slowdown, Simeka maintained tenure on all
existing contracts and secured new contract awards to maintain its
significant annuity income base exceeding R2 billion over the next 5 years.
The Technology division saw reasonable growth during the period. The Business
Support Services division incorporating the Process and People businesses was
more severely impacted by harsh trading conditions, compounded by the
introduction of RICA and the proposed Labour Broking legislation, which
resulted in a decline in business activity.
In order to sustain future growth, Simeka implemented the restructuring plan
set out in the 2009 annual report to shareholders. This resulted in the group
divesting from non-core businesses; consolidating synergistic businesses to
improve efficiencies and redirecting and rightsizing loss-making businesses
("the restructuring").
The restructuring necessitated contained retrenchment of 135 staff (at a
total cost to the group of R8,0 million) and closure of Matomo Technologies
(Pty) Ltd, the exclusive local assembler plant for Hewlett Packard ("HP") ALC
computers which suffered complete dilution of volumes as a result of HP`s
global rationalisation in the wake of the economic downturn. A total goodwill
impairment of R178 million was absorbed for the period. No further material
impairment of goodwill is expected for the full year ending 31 May 2010,
subject to verification by an independent expert at year-end 31 May 2010 in
accordance with the group`s accounting policies.
The intended R10 million investment in Nigeria was concluded during the
period. While delays in local Nigerian regulation initially delayed the
commissioning of the voucher production line, progress has since been made
and the investment is expected to yield significant growth opportunities over
the next 6 to 12 months.
Financial results
Turnover of R372,3 million, of which 90% was generated from South Africa and
the balance from Africa, with EBITDA of R50,3 million was reported for the
period. A normalised growth in revenue of at least 6% from the previous
period was achieved. EBITDA margins declined from 20% to 13.5%, largely due
to general margin pressure, and reflect a more sustainable margin level.
Resulting from the impairment of goodwill, net tangible asset per share
increased to 4,5 cents from 1,5 cents and the net asset value per share
reduced to 54,9 cents accordingly.
Despite tough trading conditions Simeka increased its cash to R97 million.
Reconciliation of core earnings:
R`000
Profit before tax (148 778)
Add: Goodwill impairment 178 625
Amortisation of intangible assets 2 091
Restructuring and retrenchments costs 12 272
Profit/(loss) on sale of subsidiary 1 611
Impairment of loans 1 423
Core profit before tax 47 244
Taxation (target tax rate of 29.2%) (13 795)
Core profit after tax 33 449
Goodwill
Goodwill impairment for the period of R178,625,000 (31 May 2009: R10 037)
reflects a write-down for the following subsidiaries:
Subsidiary R`000
Premium Ideas (Pty) Ltd 60,000
SAB&T Ubuntu Holdings Limited ("SUHL") 47,560
Simeka Consulting (Pty) Ltd 32,764
Matomo Technologies (Pty) Ltd 15,977
Foster-Melliar (Pty) Ltd 7,325
Mint Net (Pty) Ltd 6,068
Simeka Resourcing Solutions (Pty) Ltd 5,000
Other subsidiaries without significant goodwill 3,931
Premium Ideas (Pty) Ltd
The unexpected introduction of "RICA" in South Africa in the mobile industry
saw volumes drop initially by up to 70%. These have subsequently recovered
somewhat and normalised at around a 50% reduction from previous levels. As a
result Premium Ideas` volumes and revenue generation have reduced,
exacerbated by general margin pressure from the mobile operators. Accordingly
goodwill has been conservatively impaired by 50%. Rica is currently being
proposed for implementation in Nigeria which impact has not been factored
into this impairment.
SUHL
SUHL`s disposals of its investment in Equitemps (Pty) Ltd and SAB&T UK
Limited during the period, and subsequent disposals of its investments in
Virtually HR (Pty) Ltd and Timestalent (Pty) Ltd post the end of the period
as well as the imminent exit from Cortell, have been taken into account in
the indicative assessment of goodwill. Further, as a result of the
restructuring of the SUHL group and the downward adjustment of the purchase
price the goodwill which arose from the initial transaction was impaired.
Simeka Consulting (Pty) Ltd
As anticipated, the group`s restructuring plan including the integration of
the entire Simeka Consulting business into SUHL`s consulting division has
been concluded. The traditional management consulting business has seen a
decline in activity and the remaining goodwill has therefore been impaired.
Matomo Technologies (Pty) Ltd
Matomo Technologies was closed during the period when, as the exclusive local
assembler plant of HP ALC computers, volumes were completely eliminated
following HP`s rightsizing reaction to the financial crisis. An impairment in
the remaining goodwill of R15,977,000 has resulted.
Foster-Melliar (Pty) Ltd
Due to the economic downturn, training activities have declined significantly
both locally and internationally, which has resulted in a goodwill impairment
of R7 325.
Mint Net (Pty) Ltd
The anticipated restructuring and integration of Mint Net into Adcheck has
been completed. The remaining Mint Net goodwill of R6,068,000 has been
impaired.
Simeka Resourcing Solutions (Pty) Ltd
The proposed implementation of the Labour Broking regulations has, and will
continue to have a significant impact on the business coupled with margin
pressures, which is anticipated to result in a decline in turnover and
earnings. The group has conservatively impaired goodwill by R5,0 million in
anticipation of this.
Business combination
SAB&T UK Limited
On 1 June 2009 Simeka disposed of 100% of the shares in SAB&T UK, a wholly-
owned subsidiary of SUHL. The proceeds of the disposal amounted to R1,300 and
were received in cash. The disposal resulted in a loss on sale of R1,058,553.
No revenue pertaining to SAB&T UK was included in the group`s results for the
period.
On 1 June 2009 the fair values and carrying amounts of SAB&T UK were as
follows:
Carrying value Fair Value
R`000 R`000
Property, plant and equipment 112 112
Trade and other receivables 459 459
Trade and other payables (823) (823)
Cash and cash equivalents 103 103
Equitemps (Pty) Ltd
On 1 November 2009 Simeka disposed of Equitemps - a 30% held associate of
SUHL. The proceeds on disposal amounted to R130 000 and were received in
cash.
Other financial liabilities
On 27 July 2009 Simeka obtained an additional R28,1 million five-year long
term loan including service fees. The liability will bear interest at JIBAR
rate +5.75% and is repayable in quarterly instalments of R1,955,514 over 60
months from 27 October 2009.
Segmental reporting
The Business Support Services division contributed 51% of group revenue,
while the Technology division contributed the balance of 49%.
Segment Report
Business Support Technology Total after
Services eliminations
Nov 09 Nov 08 Nov 09 Nov 08 Nov 09 Nov 08
R`000 R`000 R`000 R`000 R`000 R`000
Revenue
Total segment 222 594 321 582 210 227 105 901 372 307 393 044
revenue
Profit/(loss)from 18 515 52 904 20 731 4 352 (158 919) 47 556
ordinary
activities
Consolidated total
assets 384 990 648 841 195 639 90 457 633 918 830 473
Consolidated total
liabilities 184 587 121 872 128 260 69 049 323 802 318 046
Contingent liabilities
An amount of R1,5 million has been provided for in respect of the contingent
liabilities disclosed in the annual report for the previous year end 31 May
2009.
Vendor commitments
A total of R15 million in vendor liabilities was discharged during the
period, of which R10,5 million was paid from cash flows from financing
activity and the balance of R4,5 million by the issue of 9 million shares to
Adcheck vendors.
Share repurchase
The company repurchased 2 541 478 shares during the period at a total cost of
R667 265 and intends to continue to repurchase shares in the current year.
Post balance sheet events
Virtually HR (Pty) Ltd
On 1 December 2009 Simeka disposed of Virtually HR - a 49% held associate of
SUHL. The proceeds on disposal amounted to R1,800,000 and were received in
cash. The loss on disposal amounted to R4,946,417.
Timestalent (Pty) Ltd
On 1 December 2009 Simeka disposed of Timestalent - a 26% held associate of
SUHL. The proceeds on disposal amounted to R300,000 and were received in
cash. The loss on disposal amounted to R7,544.
SUHL profit warranty and claw back
On 14 December 2009 agreement was reached between the SUHL vendors and Simeka
in terms of which a further settlement of 2,000,000 shares at 82c a share,
amounting to R1,64 million, was reached resulting in the original purchase
consideration being reduced by a total of 54,6 million shares being clawed
back over the past 12 months.
Cortell Corporate Performance Management (Pty) Ltd and its subsidiaries
("Cortell")
Simeka is currently in the process of disposing of Cortell, a 51% held
subsidiary by SUHL. A conclusive agreement has not as yet been finalised. It
is anticipated that a loss of approximately R3,300,000 on sale will arise by
31 May 2010.
Advocate Solutions (Pty) Ltd
On 1 December 2009, Advocate Solutions has concluded an agreement whereby in
return for the transfer of contracts in Project Line cc vendors received 30%
equity in Advocate Solutions.
The merger has numerous benefits which will result in an overall improvement
in the combined business margins, sustainable revenue and more efficient
operations as well as management depth.
Outlook
With the majority of the restructuring having been implemented, the group`s
continuing businesses have been positioned for sustainability and business
activity for the next 6 to 12 months is expected to continue at current
levels. Nonetheless the businesses will retain strong focus on growing the
existing R2 billion annuity income base.
The six months ahead will see the conclusion of the restructuring and further
consolidation of the continuing businesses as well as streamlining within the
three consistent focus areas of People, Process and Technology.
The group will continue to focus on improving financial fundamentals by
increasing free cash flows, better managing the capital deployed, reducing
the net debt position on the balance sheet and striving to attain a cost-to-
income ratio of not more than 85%.
Simeka will also continue to embark on a share repurchase programme over the
next 12 to 36 months.
Appreciation
We appreciate the tenacity and commitment of all our staff in trying economic
conditions, and look forward to working together to ensure continued credible
performance for the group.
We also thank our business associates, customers and shareholders for their
ongoing support. By order of the board
Mohammed Varachia Suren Singh
CEO CFO
17 February 2010
Directors: Dr PS Molefe (Chairman)*, M Varachia CEO),
S Singh (CFO), M Papiyana Group Human Resources
Director), N Singh, KBJ Molefe*, NY Mhinga*(*Non-
executive)
Registered office: Corner Naivasha and Rivonia Road entrance in
Kikuyu Street), Sunninghill(PO Box 4307, Halfway
House, Midrand, 1685)
Transfer secretaries: Computershare Investor Services (Pty) Limited,
70 Marshall Street, Johannesburg, 2001(PO Box 61051,
Marshalltown, 2107)
Company secretary: Noelene Beryl January, Corner Naivasha and
Rivonia Road (entrance in Kikuyu Street),
Sunninghill(PO Box 4307, Halfway House, Midrand,
1685)
Designated advisor: Java Capital (Proprietary) Limited
Date: 17/02/2010 10:35:02 Produced by the JSE SENS Department.
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