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IDE
IDE
IDE - Ideco - Unaudited Consolidated Results For The Six Months Ended 28
February 2010
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")
UNAUDITED CONSOLIDATED RESULTS
for the six months ended 28 February 2010
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
28 February 28 February 31 August
R`000 Notes 2010 2009 2009
Assets
Non-current assets
Property, plant and 1 9 720 6 645 10 210
equipment
Investment in associate 2 333 20 611 -
Other non-current assets 3 58 318 24 153 58 724
Deferred tax 7 997 3 226 7 481
76 368 54 635 76 415
Current assets
Inventories 13 305 11 879 12 704
Trade and other 27 466 16 274 23 894
receivables
Taxation receivable 343 - 343
Cash and cash equivalents 4 080 1 504 8 598
45 194 29 657 45 539
Total assets 121 562 84 292 121 954
Equity and liabilities
Equity
Share capital 1 1 1
Share premium 21 286 21 286 21 286
Retained income 7 680 17 361 7 494
28 967 38 648 28 781
Liabilities
Non-current liabilities
Long-term borrowings 4 37 871 2 541 42 996
Deferred tax 361 - 361
38 232 2 541 43 357
Current liabilities
Current tax payable 950 319 325
Trade and other payables 17 221 14 585 20 257
Current portion of non- 250 191 238
current liabilities
Bank overdraft 9 064 6 416 351
Provisions 1 514 - 1 354
Other financial 5 25 364 21 592 27 291
liabilities
54 363 43 103 49 816
Total liabilities 92 595 45 644 93 173
Total equity and 121 562 84 292 121 954
liabilities
Net asset value per share 14,32 19,11 14,23
(cents)
Net tangible asset value (18,29) 5,57 (18,33)
per share (cents)
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
28 February 28 February 31 August
R`000 Notes 2010 2009 2009
Revenue 57 700 40 415 83 076
Cost of sales (23 336) (26 608) (48 806)
Gross profit 34 364 13 807 34 270
Other income 82 72 166
Operating (28 855) (17 419) (45 923)
expenses
EBITDA 5 591 (3 540) (11 487)
Depreciation (736) (525) (1 105)
Amortisation (1 134) (769) (2 196)
Operating 3 721 (4 834) (14 788)
profit/(loss)
Investment 140 21 287
revenue
Finance costs 6 (2 838) (344) (4 359)
Share of profit - 1 536 2 023
of associate
company
Profit/(loss) 1 023 (3 621) (16 837)
before tax
Taxation (837) 1 397 4 746
(expense)/credit
Profit/(loss) for 186 (2 224) (12 091)
the period
Total 186 (2 224) (12 091)
comprehensive
income/(loss)
attributable to
ordinary
shareholders
Number of shares
- Issued 202 222 222 202 222 222 202 222 222
- Weighted 202 222 222 202 222 222 202 222 222
Basic 0,09 (1,10) (5,98)
income/(loss) per
share (cents)
Headline 0,09 (1,10) (5,69)
earnings/(loss)
per share (cents)
Calculation of
headline
earnings/(loss)
(R`000)
Total 186 (2 224) (12 091)
comprehensive
income/(loss)
attributable to
ordinary
shareholders
Adjusted for:
Impairment of - - 563
intangible assets
Loss on sale of - - 12
assets
Headline 186 (2 224) (11 516)
earnings/(loss)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended
28 February 28 February 31 August
R`000 2010 2009 2009
Cash generated from (1 446) 128 (11 652)
operations
Investment revenue 140 21 287
Finance costs (2 838) (344) (4 359)
Dividends paid - - -
Tax paid (728) (92) (541)
Net cash flow from (4 872) (287) (16 265)
operating activities
Net cash flow from (1 307) (1 927) 21 152
investing activities
Acquisition of (246) (342) (1 552)
property, plant and
equipment
Acquisition of (728) (5 220) (1 725)
intangible assets
Proceeds on disposal - - 1
of property, plant and
equipment
Acquisition: cash in - - 20 093
subsidiary
Investment in (333) - -
associated company
Other investing cash - 3 635 4 335
flows
Net cash flows from (7 052) 94 6 152
financing activities
Repayment of long-term (5 125) (99) (177)
borrowings
Repayment of other (1 927) 193 6 329
financial liabilities
Total cash movement for (13 231) (2 120) 11 039
the period
Cash at the beginning of 8 247 (2 792) (2 792)
the period
Total cash at end of (4 984) (4 912) 8 247
period
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended
28 February 28 February 31 August
R`000 2010 2009 2009
Ordinary share capital
Balance at beginning of 1 1 1
period
Issue of shares - - -
Balance at end of period 1 1 1
Share premium
Balance at beginning of 21 286 21 286 21 286
period
Issue of shares - - -
Balance at end of period 21 286 21 286 21 286
Retained income
Balance at beginning of 7 494 19 585 19 585
period
Profit/(loss) for the 186 (2 224) (12 091)
period
Balance at end of period 7 680 17 361 7 494
Total shareholders` 28 967 38 648 28 781
equity at end of period
NOTES TO THE STATEMENT OF FINANCIAL POSITION
R`000 February February August
2010 2009 2009
1. Property, plant and
equipment
Land and buildings 6 999 4 708 7 002
Furniture and fixtures 544 634 644
Motor vehicles 378 463 435
Office equipment 200 43 217
IT equipment 1 599 797 1 912
9 720 6 645 10 210
2. Investment in
associate
Shares at cost * 16 612 -
Loan to associate 333 - -
Equity accounted - 3 999 -
earnings of associates
333 20 611 -
* Less than R1 000.
3. Other non-current
assets
Computer software 5 009 6 082 4 734
Trademark 7 700 - 7 700
Goodwill on acquisition 28 900 - 28 900
Intellectual property 1 500 1 500 1 500
rights
Right of use 15 209 16 571 15 890
58 318 24 153 58 724
4. Long-term borrowings
Secured at amortised
cost
ABSA Bank 2 271 2 541 2 396
Cumulative redeemable 35 600 - 40 600
preference shares issued
to NEF
37 871 2 541 42 996
5. Other financial
liabilities
Sagem Security South 25 364 21 326 24 420
Africa (Pty) Limited
Kroll Associates (Pty) - - 2 871
Limited
Sagem Defence Securite, - 266 -
France
25 364 21 592 27 291
6. Finance costs
Interest (1 390) (344) (4 359)
Dividends on cumulative (1 448) - -
redeemable preference
shares issued to NEF
(2 838) (344) (4 359)
SEGMENTAL ANALYSIS
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended
28 February 28 February 31 August
R`000 2010 2009 2009
Revenue
Biometric products 23 375 33 167 58 571
Credentialing services 32 045 3 984 17 716
Biometric solutions and 2 280 3 264 6 789
projects
57 700 40 415 83 076
Operating profit/(loss)
Biometric products 1 106 2 845 2 107
Credentialing services 11 187 (1 504) (1 421)
Biometric solutions and (1 181) (206) (1 526)
projects
11 112 1 135 (840)
Corporate and other (7 391) (5 969) (13 948)
expenses (unallocated)
3 721 (4 834) (14 788)
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision- makers. These chief
operating decision-makers have been identified as the executive committee
members who make strategic decisions.
The chief operating decision-makers have organised the operations of the company
based on the product lines and services and this has resulted in the creation of
the following segments:
* Biometric products: the segment focusing on selling biometric products to the
private and public sectors;
* Credentialing services: the segment providing criminal record checks and
background screening services to employers; and
* Biometric solutions and projects: the segment focusing on large biometric
projects and concomitant solutions in the public and private sectors.
The accounting policies of the operating segments are the same as those
described in the basis of preparation. Biometric products are almost exclusively
sold within South Africa.
The revenue of the credentialing services segment is generated by Ideco
AFISwitch and MIE.
Revenue generated by the biometric solutions and projects segment was largely
generated in Namibia with the Namibian driver`s licence contract.
COMMENTARY
INTRODUCTION
Set out above are the unaudited condensed consolidated interim results of Ideco
in respect of the six months ended 28 February 2010.
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 Limited Listings
Requirements. The accounting policies adopted in the preparation of the
unaudited financial information are consistent with those used to prepare the
interim financial statements for the six months ended 28 February 2009.
The interims have not been audited or reviewed by the group`s auditors.
The following new Standards and amendments to Standards were mandatory for the
first time for the financial period beginning 1 September 2009:
IAS 1 (revised), `Presentation of financial statements`: The revised Standard
prohibits the presentation of items of income and expenses (that is `non-owner
changes in equity`) in the statement of changes in equity, requiring `non-owner
changes in equity` to be presented separately from owner changes in equity. All
`non-owner changes in equity` are required to be shown in a performance
statement.
Entities can choose whether to present one performance statement (the statement
of comprehensive income) or two statements (the income statement and statement
of comprehensive income).
The group has elected to present one statement of comprehensive income. The
unaudited condensed consolidated interim financial statements have been prepared
under the revised disclosure requirements.
IFRS 8, `Operating segments`: IFRS 8 replaces IAS 14, "Segment reporting`,
extends the scope of segmental reporting, requiring additional disclosure. This
Standard requires the company to adopt the `management approach` to reporting
segment information under which segment information is presented on the same
basis as that used for internal reporting purposes.
FINANCIAL OVERVIEW
An operating profit of R3,7 million was achieved for the six months ended 28
February 2010, compared to an operating loss of R4,8 million for the comparative
six months period ended 28 February 2009, and an operating loss of R14,8 million
for the full financial year ended 31 August 2009. This represents a turn-around
of R8,5 million compared to the first six months and R18,5 million compared to
the full financial year ended 31 August 2009.
The major contributing factors to the improved operating results were the
improvement in revenue from credentialing services as a result of the continuing
rollout of the AFISwitch service for criminal background checks and the
inclusion of the MIE business in the full six month reporting period following
its acquisition in July 2009. The segment`s revenue increased from R3,9 million
for the first six months of the year ended 31 August 2009 to R32 million for the
current reporting period. Revenue of R13,7 million was achieved for the second
six months of the year ended 31 August 2009.
Revenue of biometric products declined by R9,8 million compared to the six
months ended 28 February 2009, as a direct result of the economic slowdown.
Revenue from biometric solutions and projects declined by R1 million to R2,3
million. This segment`s revenue usually fluctuates and is dependent on the
project contracting environment.
The gross profit percentage increased from 34,2% to 60% because credentialing
services made up a greater percentage of the sales mix compared to the six
months ended 28 February 2009. On the other hand, there are higher fixed
expenses in respect of the credentialing services, which resulted in an increase
of R10 million in operating expenses in comparison with the six months ended 28
February 2009.
Property, plant and equipment increased by R3 million compared to 28 February
2009, 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 compared
to 28 February 2009, 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, which owns the trademark software. The right of use of R15,2 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 criminal background checking service. This amount will be
amortised over the remaining period of the agreement with SAPS.
The group acquired a 25% share in a new venture, Biometric Medical Solutions
(Pty) Limited ("BioMed"), offering biometric solutions to the health industry.
The investment in an associate of R333 000 is in respect of a first loan to
BioMed. Ideco will make further loans to the company, subject to certain
milestones being achieved.
Inventories mainly consist of biometric readers and increased by 12% compared to
28 February 2009. The increase in trade receivables from 28 February 2009 to
2010 is due to the acquisition of MIE and the higher trading activity in respect
of criminal record checks performed by Ideco AFISwitch.
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
R2,5 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 R25,4 million due to Sagem
which was taken over in respect of the SAPS AFIS referred to above. In the
provisional results announcement for the year ended 31 August 2009, which was
announced on SENS on 8 December 2009, it was mentioned as a post balance sheet
item that the first repayment of this liability would have been made at the end
of March 2010. Ideco is exploring the placing of new shares with strategic
partners and it has been agreed with Sagem that payment of the above amount due
to them will be made from the proceeds of such capital raising exercise.
OPERATIONS
Biometric Products
The first sign of the impact of the economic downturn on this business was
evident in May 2009, when sales in the private sector were 44% lower than in May
2008. This trend continued for the first four months of the reporting period,
where sales for September 2009 to December 2009 were 39% lower than the
corresponding four months in the previous year. The trend reversed in January
and February 2010, when sales were only 1% lower than the corresponding two
months in 2009.
Sales to the public sector have still not recovered, although Ideco is sub-
contracting for a large tender that has been awarded, but delivery of products
has been delayed by several months.
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 for the whole period. The economic downturn
also resulted in MIE`s revenue decreasing in comparison to the corresponding six
months ended February 2009.
Revenue from criminal background checks increased by 27% for the six months
ended 28 February 2010 compared to the corresponding six months ended 28
February 2009. The number of checks performed represented only 35% of capacity
due to the slower than expected implementation of criminal record checks for
professional driver permits applications and renewals, where only 10% of the
potential number of searches was achieved.
The revenue for the current reporting period includes a once-off project fee of
R7,9 million in respect of work done on the upgrade of the SAPS AFIS in order to
improve service delivery.
Biometric Solutions and Projects
Revenue generated by this segment was R900 000 lower than the corresponding six
month period ended 28 February 2009. The previous reporting period included
revenue from a pilot project for the Gauteng Department of Health. The pilot was
completed successfully, but it is doubtful whether the main project will go
ahead.
PROSPECTS
Biometric Products
The reversal of sales experienced in January and February referred to above,
continued in March 2010 when sales increased by 5,5% over March 2009. Management
is confident that this upward trend will continue.
In the government sphere Ideco has been appointed as a sub-contractor to supply
biometric components and systems to several suppliers who are contracted by
government for various projects. Ideco is also awaiting the adjudication of a
few other tenders for biometric readers.
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 Driver Permits,
which will constitute approximately 50% of capacity when implemented fully. The
installation of background checking equipment at the 350 testing stations
countrywide is well underway and will continue throughout 2010. The agreement
concluded in May 2009 for the management of more than 300 000 identity profiles
is also in the implementation phase which will be completed early in 2011. This
project will provide predictable annuity revenue flow to the group.
MIE has been experiencing increasing demand for its services and has also
acquired new contracts that will further increase revenue during the remainder
of the financial year and beyond.
Biometric Projects
In addition to the Namibian driver`s 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
As reported before, Ideco has concluded a three year ticketing agreement with
the Bombela Operating Company in charge of operating the Gautrain service. Ideco
has received the first order for tickets from Bombela to be available when the
Gautrain starts operating.
We have also previously reported that Ideco has 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. The joint venture
has already achieved sales in excess of the initial budget and early indications
are that the venture stands a good chance of being a success.
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
There are no post balance sheet events to report on.
DIVIDEND
No dividend has been declared for the period.
By order of the board
Vhonani Mufamadi H B Aucamp
CEO CFO
28 May 2010
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: 28/05/2010 14:36:02 Produced by the JSE SENS Department.
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