| Wed 4 Aug 2010, 10:58 | | SBG - Simeka Business Group Limited - Reviewed results for year ended 31 May |
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SBG
SBG
SBG - Simeka Business Group Limited - Reviewed results for year ended 31 May
2010 and renewal of cautionary announcement
Simeka Business Group Limited
(Incorporated in the Republic of South Africa)
(Registration number 2003/012583/06)
JSE code: SBG ISIN: ZAE000074878
("Simeka" or "the Company" or "the Group")
REVIEWED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MAY
2010 AND RENEWAL OF CAUTIONARY ANNOUNCEMENT
Highlights
* NTAV per share increased to 4.7 cents
* Net cash on hand increased to R93.8 million
* Headline earnings of R30.3 million despite difficult trading conditions
Consolidated condensed statement of comprehensive income
Reviewed Audited
Year ended Year ended
31 May 31 May
2010 2009
R`000 R`000
Revenue 688 845 755 986
Turnover 685 670 752 070
Cost of sales (402 286) (397 930)
Gross profit 283 384 354 140
EBITDA 77 176 119 014
Depreciation (13 002) (7 727)
Amortisation of intangible assets (4 685) (4 183)
Impairment of goodwill and intangible (271 059) (3 675)
assets
(Loss) on sale of businesses (10 004) -
Impairment of investments (556) -
Net finance costs (21 313) (20 909)
Income from associate (214) 3 499
(Loss)/profit before taxation (243 658) 86 019
Income tax expense (2 602) (29 755)
(Loss)/profit for the period (246 142) 56 264
Other comprehensive income for the period,
net of tax 118 (7 044)
Total comprehensive (loss)/income for the
period (246 142) 49 220
(Loss)/profit attributable to:
Owners of the parent (251 360) 47 482
Non-controlling interest 5 100 8 782
Total comprehensive (loss)/income
attributable to:
owners of the parent (251 242) 40 438
Non-controlling interest 5 100 8 782
(Loss)/earnings per share (cents) (46.3) 9.1
Diluted (loss)/earnings per share (cents) (46.3) 8.7
Notes to the statement of comprehensive
income
Headline earnings for the year
attributable to ordinary shareholders 30 319 57 784
Headline earnings per share 5.58 11.11
Diluted headline earnings per share 5.58 10.56
Number of shares (`000)
Weighted average number of shares 543 414 520 031
Diluted weighted average number of shares
in issue and to be issued 543 414 547 069
Headline earnings calculation:
Earnings for the year attributable to (251 360) 47 482
ordinary shareholders
Goodwill impairment 230 295 10 127
Intangible assets impairment 40 764 -
Loss on disposal of subsidiaries and 10 004 30
associates
Impairment of investment 556 -
Loss on disposal of property, plant and 60 145
equipment
Headline earnings for the year
attributable to ordinary shareholders 30 319 57 784
Condensed consolidated statement of Reviewed Audited
financial position 31 May 2010 31 May 2009
R`000 R`000
ASSETS
Non-current assets 263 177 529 205
Property, plant and equipment 37 846 36 934
Goodwill 180 709 408 724
Intangible assets 4 519 50 247
Other financial assets 3 613 4 948
Investments - 346
Investment in associate company 3 789 10 384
Deferred taxation 32 701 17 622
Current assets 202 951 248 299
Inventories 9 624 7 008
Trade and other receivables 91 964 142 145
Financial assets 871 2 186
Taxation receivable 5 182 4 791
Operating lease assets 113 83
Cash resources 95 197 92 086
Total assets 466 128 777 504
EQUITY AND LIABILITIES
Capital and reserves 210 610 413 480
Share capital 300 742 252 370
Reserves (5 875) (5 993)
Accumulated profit (84 257) 167 103
Amounts due to vendors in shares - 53 700
Non-controlling interest 6 629 15 036
Total equity 217 239 482 216
Non-current liabilities 94 273 128 204
Other financial liabilities (interest
bearing debt) 88 221 111 531
Finance lease obligation 2 465 1 323
Deferred taxation 3 587 15 350
Current liabilities 154 616 167 084
Vendor liabilities - 5 385
Other financial liabilities (interest 47 456 33 970
bearing debt)
Finance lease obligations 5 091 -
Trade and other payables 83 683 119 996
Provisions 2 930 4 532
Bank overdraft 1 398 -
Operating lease liability 1 038 1 951
Current tax payable 13 020 1 250
Total equity and liabilities 466 128 777 504
Total shares in issue (`000) 602 016 602 016
Total shares in issue after treasury
shares (`000) 544 637 545 771
Net asset value per share (cents) 38.8 85.6
Net tangible asset value per share (cents) 4.7 1.5
Condensed consolidated statement of cash flows
Reviewed Audited
Year ended Year ended
31 May 31 May
2010 2009
R`000 R`000
Net cash flows from operating activities 48 113 82 974
Net cash flows from investing activities (23 688) (12 152)
Net cash flows from financing activities (22 712) (49 761)
Net increase in cash and cash equivalents 1 713 21 061
Cash and cash equivalents at beginning of 92 086 71 025
year
Cash and cash equivalents at end of year 93 799 92 086
Condensed consolidated statement of changes in equity
Reviewed Audited
Year ended Year ended
31 May 31 May
2010 2009
R`000 R`000
Capital and reserves - opening balance 482 216 343 655
Shares issued - 101 516
Treasury shares - (6 872)
Payment of vendor liabilities (53 700) (33 800)
Share repurchase taken to treasury (662) (31 859)
Acquisition of subsidiaries and businesses 49 034 53 467
Disposal of subsidiaries (712) -
Total comprehensive (loss)/income for the (246 142) 56 109
period
Dividend paid to non-controlling interest (12 795) -
Capital and reserves - closing balance 217 239 482 216
Commentary
Introduction
The directors of Simeka present the reviewed financial results for the year
ended 31 May 2010 ("the year").
The reviewed condensed financial statements for the year were authorised for
issue by the directors on 2 August 2010.
The global economic downturn together with the restructuring and RICA
legislative changes impacted negatively on Simeka with turnover of R685.7
million, down 8.8% from R752 million in the prior year while headline earnings
amounted to R30.3 million (2009: R57.7 million).
Following the restructuring and the impact thereof, a total goodwill impairment
of R230.3 million (2009: R10.1 million) and impairment of intangibles of R40.7
million (2009: Rnil) were absorbed for the year.
Group profile
Simeka is a leading black-empowered provider of business support, outsourcing
and technology solutions and operates through three focus areas namely People,
Process and Technology.
The group provides comprehensive business support and outsourcing services as
well as bespoke business solutions by combining the niche offerings of its major
brands within the various divisions.
Operational overview
During the year Simeka implemented a consolidation programme, which included
divesting from non-core businesses, consolidating synergistic businesses to
further improve efficiencies and redirecting and rightsizing loss-making
businesses ("the restructuring"). The majority of the restructuring has been
completed and operations have been streamlined into its existing three focus
areas (People, Process and Technology), setting a solid platform for the year
ahead. The restructuring included the retrenchment of 140 staff and as at 31 May
2010 the total staff complement was 1 049 inclusive of contractors.
The general economic downturn together with the restructuring and RICA
legislative changes impacted negatively on results with a number of the Group`s
customers reducing expenditure and choosing only essential services instead of
the full ambit of tendered contracted services. In particular the Process
division experienced a slowdown in new orders as a direct result of the
introduction of RICA legislation in South Africa and Nigeria. The move away from
consultants in the private and public sector as well as the aggressive
implementation of the Preferential Procurement Policy Framework Act of 2000
("PPPFA") in the public sector, which does not allow Black Economic Empowerment
("BEE") equity preference points to listed companies, further impacted
negatively on the division. The PPPFA recognises BEE in relation to management
shareholders who are actively involved in the business and who are long-term
shareholders. Accordingly the board is in the process of addressing this
business imperative and have undertaken that this would need to be resolved
shortly.
Nigeria
During the year RICA was introduced in Nigeria as anticipated which resulted in
a further impairment. Simeka expanded further into Nigeria with the
establishment of a wholly-owned subsidiary, INGR Technologies. This move was
driven by client demand and the significant growth opportunities in the PPM
(Power, Process and Marine) and GIS (Geospatial) market in Nigeria. The South
African market for these technologies is expected to remain relatively flat for
the year ahead.
India
In an effort to address international pricing pressures on the existing Process
outsourcing business, Simeka is in the process of finalising its subsidiary in
India and establishing a joint venture in India which will provide additional
capacity, alternative products and serve as a disaster recovery site. This will
enable Simeka to capitalise on lucrative and sustainable business opportunities
in both South Africa and across Africa.
Share repurchase programme
During the year under review the company repurchased 2 541 478 shares (2009: 7
500 000 shares) which are held as treasury shares at a total cost of R667 265
(2009: R2 800 000). The Group intends to continue repurchasing shares in the
current year.
Black Economic Empowerment
Simeka remains committed to continually enhancing its credentials in respect of
all aspects of scorecarding and exploring avenues to enhance BEE.
Simeka is black-owned and managed with majority of Simeka`s board being black.
The board views the fact that there is not an adequate committed shareholder
base over the medium-term as a risk. Accordingly the board has engaged with
potential BEE partners including management to help address this business risk.
The board has undertaken to have this process concluded shortly.
Financial results
Of the R685.7 million in turnover (2009: R752 million) South Africa accounted
for 91% with the balance generated from the rest of Africa. EBITDA amounted to
R77.1 million (2009: R119 million) for the year with EBITDA margins of 11.2%,
which declined from 15.8% in the previous year due to the restructuring cost,
the impact of RICA and general pricing pressures from customers.
Net tangible asset per share increased to 4.7 cents from 1.5 cents and the net
asset value per share reduced to 38.8 cents.
Dividend
After having considered the current business and financial conditions, the board
has resolved not to declare a dividend out of the company this year.
Basis of preparation
The reviewed condensed consolidated results have been prepared in accordance
with the Framework concepts and the measurement and recognition requirements of
the International Financial Reporting Standards, containing information required
by the IAS 34 Financial Reporting as well as AC 500 standards as issued by the
Accounting Practices Board or its successor, the JSE Limited Listings
Requirements and in the manner required by the Companies Act. These results must
be read in conjunction with the most recently issued annual financial
statements.
Significant accounting policies
The reviewed condensed consolidated annual financial statements have been
prepared under the historical cost convention, except for certain financial
instruments which are measured at fair value.
The accounting policies, presentation and methods of computation applied in
preparation of these reviewed condensed consolidated annual 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 and
has had no significant impact on group segmental reporting. 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
previously 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.
Unqualified review opinion
The condensed consolidated annual financial results have been reviewed by the
company`s auditors, Mazars. Their unqualified review report is available for
inspection at the company`s registered office.
Goodwill impairment
Goodwill is tested annually or more frequently when there are indications that
an impairment may have occurred, by comparing the carrying value to its
recoverable amount. The impairment loss is recognised separately in the
statement of comprehensive income.
Impairment testing for cash-generating units containing goodwill
The recoverable amount of each operation`s goodwill is based on value-in-use
calculations. The calculations are based upon discounting expected pre-tax cash
flows at a risk adjusted interest rate appropriate to the cash generating unit.
The determination of both requires the exercise of judgement. The estimation of
pre-tax cash flows is sensitive to the periods for which forecasts are available
and to assumptions regarding the long-term sustainable cash flows. While
forecasts are compared with actual performance and external economic data,
expected cash flows naturally reflect management`s view of future performance.
Due to the current position management have assumed a conservative outlook and a
similar performance for the financial year following the current year.
Goodwill
Goodwill impairment for the current year of R230 295 000 (2009: R10 127 000)
reflects a write-down for the following subsidiaries as a result of the
restructuring programme and the impact of RICA:
R`000
Foster-Melliar (Pty) Ltd 7 575
Cybernet Africa Logistics (Pty) Ltd 783
Matomo Technologies (Pty)Ltd 15 977
Diversifixx Consulting (Pty) Ltd (previously Simeka 32 764
Consulting)
Simeka Consulting (Pty) Ltd (previously Simeka 6 178
Resourcing Solutions)
Premium Ideas South Africa (Pty) Ltd 97 519
SAB&T Ubuntu Holdings Limited 49 607
Mint Net (Pty) Ltd 6 068
Mint Management Technologies (Pty) Ltd 9 893
Other subsidiaries without significant goodwill 3 931
Total 230 295
Intangible assets
During the annual impairment test for goodwill, intangible assets were impaired
totalling R 40 763 950(2009: nil).
Reconciliation of effective tax rate and statutory tax rate
31 May 2010
Effective tax rate -1.07%
Add back non-deductible expenses
STC 1.05%
Impairment of goodwill 26.46%
Loss on disposal of subsidiaries 0.53%
Loss on disposal of associates 0.62%
Impairment of investments 0.06%
Other 0.34%
Statutory tax rate 28%
Other financial liabilities
On 27 July 2009 Simeka obtained an additional R28 million a five-year term loan
to facilitate vendor and asset financing. The liability bears interest at a
floating rate and is repayable in quarterly instalments.
Property, plant and equipment
During the year the Group reassessed the useful lives of property, plant and
equipment. The impact on the Group has been a reduction in depreciation expense
of R2.9 million which is included in the statement of comprehensive income owing
to useful lives of assets being extended to be aligned to the economic use of
the assets. The impact has been summarised as follows:
Segmental reporting
The Business Support Services (People and Outsource Process) division
contributed 61% and the Technology division contributed the balance of 39% of
Group revenue.
Business Support Technology
Services
May 10 May 09 May 10 May 09
R`000 R`000 R`000 R`000
Total segment 466 428 578 493 289 975 261 627
turnover
Profit/(loss)from 58 019 75 352 28 909 9 221
ordinary
activities
Consolidated 395 181 417 471 132 039 180 245
total assets
Consolidated 118 349 218 531 105 978 122 759
total liabilities
Corporate and Totals
eliminations
May 10 May 09 May 10 May 09
R`000 R`000 R`000 R`000
Total segment (70 733) (88 050) 685 670 752 070
turnover
Profit/(loss)fr (333 188) - (246 260) 56 264
om ordinary
activities
Consolidated (61 092) 179 788 466 128 777 504
total assets
Consolidated 24 562 (45 002) 248 889 296 288
total
liabilities
Vendor obligations
No vendor obligations exist at year-end as all were settled during the year.
The final settlement with regard to the vendor obligation of Mint Management
Technologies was agreed during the year and resulted in an increase in the
consideration.
Provisions and contingent liabilities
Simeka has reached a full and final settlement with BSG revolving around the
legal issue with the name. The settlement takes into account the avoidance of a
protracted and expensive litigation. The amount of R2 million is to be paid over
12 months.
Related parties
During the year, certain subsidiaries, in the ordinary course of business
entered into various loans and transactions with related parties under terms
that are no less favourable than those arranged with third parties.
Transactions between the company and its subsidiaries, which are related parties
of the company, have been eliminated on consolidation and total R117 233 000
comprising the following:-
R`000
Intercompany sales 70 733
Management fees 29 825
Rent paid 2 298
Interest received 1 519
Dividend received 12 798
Subsequent events
Renewal of cautionary announcement - BEE Transaction
As announced on SENS on 30 July 2010 shareholders were advised that the company
has entered into discussions regarding a potential BEE Transaction.
The full impact of the BEE Transaction on Simeka`s shareholders is currently
being determined and shareholders will be advised accordingly. Shareholders are
advised to continue to exercise caution when dealing in Simeka`s securities
until a further announcement is made.
Outlook
Looking ahead to 2011 the directors are confident that the group has established
a solid platform for a sustainable business over the long-term however the board
expects a challenging period ahead due to difficult macroeconomic conditions
over the next 12 to 18 months.
The maintenance of BEE equity levels remains a challenge. The board will
continue to focus on enhancing and improving Simeka`s BEE status which is an
imperative to maintaining existing contracts.
Changes to the board
On 2 August 2010 Mr P Gordon was appointed to the board as an independent non-
executive director and chairman of the audit committee. Messrs B Adam and T
Botha resigned as non-executive directors of the company on 25 June 2009 and 1
October 2009 respectively. At the company`s annual general meeting on 26
November 2009 Mr A Evan retired as an executive director and Mr S Montsi was not
re-elected as a non-executive director.
Appreciation
We thank all directors, managers and staff for their tenacity and drive which
contributed to the group`s performance for the year. We welcome to the group all
new employees and look forward to working together to continue Simeka`s success.
We extend our appreciation to all our shareholders, business associates and our
loyal customers for their unwavering support in these difficult times.
By order of the board
Mohammed Varachia Suren Singh
CEO CFO
4 August 2010
Directors: Dr PS Molefe (Chairman)*, M Varachia (CEO), S Singh (CFO), M
Papiyana (Group HR Director), N Singh (Executive Director),PC Gordon*#, KBJ
Molefe*, NY Mhinga*# (*Non-executive #independent)
Registered office: 10 Kikuyu Road, Sunninghill, 2191 (PO Box 4307, Halfway
House, Midrand, 1685)
Transfer secretaries: Computershare Investor Services (Proprietary) Limited,
70 Marshall Street, Johannesburg (PO Box 61051, Marshalltown, 2107)
Company secretary: Noelene Beryl January, 10 Kikuyu Road Road, Sunninghill (PO
Box 4307, Halfway House, Midrand, 1685)
Designated advisor:
Sasfin Capital (a division of Sasfin Bank Limited)
Date: 04/08/2010 10:58:01 Produced by the JSE SENS Department.
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