| Tue 12 Oct 2010, 16:01 | | IQG - IQuad Group Limited - Preliminary condensed financial statements for the |
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IQG
IQG
IQG - IQuad Group Limited - Preliminary condensed financial statements for the
period ended 31 August 2010
IQuad Group Limited
(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 the period ended 31 August 2010
Highlights
Dividend per share 8 cents
Net tangible assets per share up 20.4%
Headline earnings per share down 14.9%
Commentary on the interim results for the 6 month period ended 31 August 2010
General comments and prospects
Headline earnings for the six months ended 31 August 2010 declined by 14.9% to
R3.93 million. Whilst these results are below expectation and somewhat
disappointing, we are pleased that the key business units have remained
profitable in spite of the extended poor economic conditions.
IQuad is expecting an improved performance in the second half of the year due to
the seasonality of some of the underlying business units.
Organic growth prospects
The restructure of the business and relocation of the CEO to Gauteng has already
yielded positive results in terms of increased exposure and opportunities for
the Group. However, this restructure has also necessitated certain short-term
costs which have had a negative impact on results in the current period. We
remain confident that these changes will have an overall positive impact on the
business in future.
Acquisitive growth prospects
During the period under review we finalised the acquisition of the remaining 26%
shareholding in Export Credit Exchange, a business involved in the on-line trade
of Import Rebate Credit Certificates which are generated under the Motor
Industry Development Programme.
Whilst acquisitions were not prioritised over the last six months, we continue
to seek out opportunities to acquire well-run and profitable businesses which
are complementary to our existing high-impact financial and verification
outsourcing model.
Goodwill impairment
Given the uncertainty in the rate of recovery of the global economy, management
deemed it appropriate to re-assess the assumptions that were used in the year-
end impairment testing of goodwill. As a result, a goodwill impairment loss of
R27.06 million was charged to profit and loss for the six months ended 31 August
2010.
Segment report
Investment incentives
The transition from the Small Medium Enterprise Development Programme ("SMEDP")
which terminated in 2006 and the Enterprise Investment Programme ("EIP") which
commenced in July 2010 has not been as seamless as we originally anticipated.
This was largely due to the stellar performance of the DTI on SMEDP claim
payments during the 2010 financial year, which resulted in a lower than expected
remaining pipeline of SMEDP revenue. However, we are encouraged by the pipeline
of projects accumulated under the EIP to date.
Also encouraging was the launch of the Automotive Incentive Scheme ("AIS"), an
investment incentive specific to the motor industry, together with the release
of the final regulations for the S12I tax incentive. We are positive that IQuad
will be able to leverage off its relationships with existing clients to benefit
from these opportunities.
Global trade services
The ongoing downturn in global trade activity and sustained strength of the rand
continues to have an adverse impact on this area of our business as most of our
fees are based on rand-denominated transactions.
We have expanded our service offering and have managed to show positive earnings
growth of over 20% in spite of the above-mentioned difficulties.
The uptake of our new training initiative has exceeded our expectations and is
making a positive earnings contribution at this early stage. Whilst not expected
to be a substantial revenue generator, training acts as a conduit to create
market awareness for other more lucrative services.
We also expect to see improved new client conversion, especially in the Gauteng
area where additional marketing resources have been employed.
Audit and verification
Our BEE verification business unit has shown substantial growth for the first 6
months of the year, with revenue increasing more than threefold over the
comparative period. We have not yet seen the resulting increase in profitability
due to our investment in additional resources in this division.
Targeting opportunities amongst large corporate clients remains a critical part
of our success strategy in the BEE verification arena in order to improve our
average revenue per client.
Business development
Following finalisation of the sale of our shareholding in Entrepreneur Survival
Solutions (Pty) Ltd ("ESS"), we have been left with limited exposure in this
segment of our business. Our remaining business activities revolve around ISO
management systems implementation and consulting, provision of specialised IT
solutions in the financial and retail sectors and assisting clients with finance
raising, feasibility studies and sale of businesses.
In our annual report for the year to February 2010, we had indicated that we
were close to finalising the sale of our shareholding in National Money Transfer
("NMT"). This sale transaction did not go ahead and we have instead focused our
efforts on fully exploiting the opportunities for the specialised IT products
and services offered by this business.
We have seen an improvement in the outlook of our consulting activities and also
tied into a medium-term relationship with one of the large banks in order to
provide customised solutions using our IT software solution.
Whilst this segment has seen an improved performance, it is still a relatively
small contributor to our overall business.
Sustainability
Client retention
Our ability to retain clients over what can be described as a difficult trading
period is very heartening and bears testimony to the quality and value of the
services rendered. We have seen improved market share in almost all business
units over the review period.
Cash flow
The Group continued to generate positive cash from its operations.
The finalisation of the sale of approximately 50% of our Port Elizabeth based
property will contribute further cash inflow of R4.5 million, with a further
R7.3 million applied as a reduction against the bond over the property.
Acknowledgement
Finally, we would like to express a vote of thanks to management and staff for
their dedicated commitment and assistance over the last six months.
Condensed consolidated statement of financial position
Unaudited Unaudited Audited
31-Aug-10 31-Aug-09 28-Feb-10
R000 R000 R000
Assets
Non-current assets 98 930 141 368 120 393
Investment property 14 255 - 13 091
Property, plant and equipment 12 843 37 668 12 694
Goodwill 62 058 95 746 87 006
Intangible assets 3 238 3 429 2 930
Investments in associates - 391 -
Available-for-sale financial asset - 401 -
Loan receivable - - 1 000
Deferred tax assets 6 536 3 733 3 672
Current assets 36 058 34 247 35 523
Work in progress 2 002 3 565 1 997
Current tax assets 1 448 - 496
Trade and other receivables 28 657 26 597 25 150
Loan receivable - 1 404 584
Amounts owing by associates and joint 317 131 117
ventures
Cash and cash equivalents 3 634 2 550 7 179
Non-current assets held for sale 14 268 - 16 328
Total assets 149 256 175 615 172 244
Equity and liabilities
Equity and reserves 104 423 136 296 137 967
Share capital 101 200 103 867 103 867
Other reserves (369) 30 (3 036)
Accumulated profit 2 942 27 832 35 123
Non-controlling interests 650 4 567 2 013
Non-current liabilities 22 000 20 083 21 102
Operating lease liability 577 476 606
Deferred tax liabilities 684 702 406
Borrowings 20 739 18 905 20 090
Current liabilities 22 833 19 236 12 813
Current tax liabilities 517 2 691 129
Trade and other payables 18 417 8 195 11 053
Provisions - 373 229
Borrowings 3 899 7 977 1 402
Liabilities held for sale - - 362
Total liabilities 44 833 39 319 34 277
Total equity and liabilities 149 256 175 615 172 244
Condensed consolidated statement of comprehensive income
Unaudited Unaudited Audited
31-Aug-10 31-Aug-09 28-Feb-10
R000 R000 R000
Continuing operations
Revenue 38 692 35 142 79 970
Cost of services rendered (19 899) (16 266) (36 010)
Gross profit 18 793 18 876 43 960
Other operating income 622 476 166
Operating expenses (41 911) (12 831) (26 167)
Operating (loss) / profit (22 496) 6 521 17 959
Investment income 1 590 1 243 4 231
Share of (losses)/profits from associates (32) (36) (124)
and joint ventures
Finance costs (1 107) (1 171) (2 423)
(Loss) / profit before taxation (22 045) 6 557 19 643
Taxation (2 558) (2 425) (6 315)
(Loss) / profit for the period from (24 603) 4 132 13 328
continuing operations
Discontinued operations
Loss for the period from discontinued - (12) -
operations
(Loss) / profit for the period (24 603) 4 120 13 328
Exchange differences on translating - - (30)
foreign operation
Total comprehensive (loss) / income for (24 603) 4 120 13 298
the period
(Loss) / profit for the period (24 603) 4 120 13 328
attributable to:
Non-controlling interests 156 (557) (831)
Equity shareholders of the Company (24 759) 4 677 14 159
Total comprehensive (loss) /income for the (24 603) 4 120 13 298
period attributable to:
Non-controlling interests 156 (557) (831)
Equity shareholders of the Company (24 759) 4 677 14 129
Basic and diluted earnings per ordinary (90.1) 16.8 50.6
share (cents)
Weighted average number of shares in issue 27 467 27 979 27 979
(000)
Condensed consolidated statement of changes in equity
Equity Non-control- Total
shareholde ling equity
rs interests
R000 R000 R000
Balance at 1 March 2009 - audited 130 984 5 124 136 108
Total comprehensive income for the 4 677 (557) 4 120
period
Dividends (3 932) - (3 932)
Balance at 31 August 2009 - unaudited 131 729 4 567 136 296
Total comprehensive income for the 9 452 (274) 9 178
period
Adjustments to contingent purchase (3 036) - (3 036)
considerations
Dividends (2 191) (500) (2 691)
Disposal of shares in subsidiaries - (1 777) (1 777)
Other changes in non-controlling - (3) (3)
interests
Balance at 28 February 2010 - audited 135 954 2 013 137 967
Total comprehensive (loss) / income (24 759) 156 (24 603)
for the period
Dividends (5 429) (706) (6 135)
Acquisition of non-controlling (1 993) (331) (2 324)
interest in existing subsidiary
Other changes in non-controlling - (482) (482)
interests
Balance at 31 August 2010 - unaudited 103 773 650 (104 423)
Condensed consolidated statement of cash flows
Unaudited Unaudited Audited
31-Aug-10 31-Aug-09 28-Feb-10
R000 R000 R000
Cash flows from operating activities 2 631 (2 746) 7 444
Cash generated from operations 6 659 215 18 610
Investment income 1 590 1 243 2 057
Finance costs (1 107) (1 171) (2 632)
Taxation paid (4 511) (3 033) (10 591)
Cash flows from investing activities (2 775) 2 057 2 962
Acquisition of property, plant and (1 575) (6 710) (7 778)
equipment
Proceeds on disposal of property, - - 250
plant and equipment
Proceeds on disposal of non-current - 9 450 10 000
asset held for sale
Acquisition of intangible assets (1 200) (683) (1 429)
Contingent considerations received - - 2 765
Proceeds on disposal of subsidiaries - - 2 344
Investment in subsidiaries - - (3 161)
Investment in associates - - (29)
Cash flows from financing activities (7 300) 2 577 4 058
Amounts advanced to associates and (200) (46) (330)
joint venture
Non-controlling interests` loans (103) - 1 064
(repaid)/advanced
Loans receivable advanced - (741) (406)
Loans payable (repaid)/advanced (862) 7 868 10 425
Dividends paid (6 135) (4 504) (6 695)
(Decrease)/increase cash and cash (7 444) 1 888 14 464
equivalents
Cash and cash equivalents at 7 179 (7 285) (7 285)
beginning of the period
Cash and cash equivalents at end of (265) (5 397) 7 179
the period
Selected explanatory notes
Basis of preparation and accounting policies
This condensed interim financial report has been compiled in accordance with IAS
34: Interim Financial Reporting, and the JSE Limited Listings Requirements.
The accounting policies and critical accounting estimates and judgements applied
to this financial report are consistent with those applied for the year ended 28
February 2010, except for as described in the note on consolidation of
subsidiaries and goodwill below.
Financial results
This condensed interim report has not been reviewed or audited by the Group`s
auditors.
Non-current assets held for sale and liabilities of disposal groups
Unaudited Unaudited Audited
31-Aug-10 31-Aug-09 28-Feb-10
R000 R000 R000
Non-current assets held for sale
Investment in subsidiary - - 4 035
Investment property 14 268 - 12 293
14 268 - 16 328
Liabilities of disposal group (NMT)
Available for sale liabilities - - (362)
The proposed disposal of NMT did not materialise and the subsidiary was
consolidated on the full method as prescribed in IAS 27. See the note on
consolidation of subsidiaries and goodwill below for further information.
The Group has disposed of a portion of the investment property and registration
of the transfer of ownership took place on 27 September 2010. As at 31 August
2010, the transfer had not yet taken place and the portion of the building was
disclosed as held for sale.
Consolidation of subsidiaries and goodwill
On 1 December 2009 the Group acquired an additional 67% interest in NMT, an
existing 17% held-for-sale investment. Of the additional interest acquired, 17%
was acquired through a share swop to the value of R680 and 50% was acquired for
R1 960 cash.
In addition to the purchase consideration, the Group advanced loans of R3 559
538 during the 2010 financial year which were capitalised to the cost of the
investment.
The subsidiary was acquired with the intention to re-sell and accordingly met
the criteria to be consolidated on the basis of recording the fair value of the
assets and liabilities of the held for sale disposal group as a single
investment during the previous year.
Accordingly, the subsidiary was disclosed as a non-current asset held for sale
as at 28 February 2010.
The proposed sale did not materialise and the subsidiary has subsequently been
consolidated on the full method as prescribed in IAS 27.
On the date that control was obtained, 1 December 2009, the fair and book values
of NMT were as follows:
Fair Book
values values
R000 R000
Director`s loan (109) (109)
Shareholders` loans (2 198) (4 335)
Property, plant and equipment 1 1
Cash and cash equivalents 140 140
Creditors (1 283) (1 283)
Debtors 29 29
Deferred tax asset 1 197 -
Net liabilities (2 223) (5 556)
Non-controlling interests 378 -
Net liabilities attributable to parent (1 845) -
Goodwill 1 848 -
Purchase consideration 3 -
Included in non-current assets held for sale (3) -
Cash and cash equivalents 140 -
Cash flow on consolidation at acquisition date 140 -
NMT provides a suite of financial service and payment platforms for the retail,
banking and third-party payment sectors.
A reconciliation of the Group`s goodwill is provided below:
Unaudited Unaudited Audited
31-Aug-10 31-Aug-09 28-Feb-10
R000 R000 R000
Balance at beginning of period 87 006 95 746 95 746
Addition through consolidation of 1 848 - -
subsidiary previously held for sale
Impairments (27 061) - (233)
Adjustments to purchase price 265 - (6 692)
considerations
Disposals of shares in subsidiaries - - (1 815)
Closing balance at end of period 62 058 95 746 87 006
A goodwill impairment test was performed at the interim period as there were
indicators which did not exist at 28 February 2010. The impairment losses that
arose were ascertained by value-in-use calculations and pertain to the following
cash-generating units:
IQuad Investment Incentives (Pty) Ltd 6 520 - -
IQuad Treasury Solutions (Pty) Ltd 10 518 - -
Other 10 023 - 233
27 061 - 233
The after-tax discount rates used in arriving at the above impairment losses
were between 20% and 23%.
In performing these value-in-use calculations management estimated average long-
term growth rates based on historical trends, taking into account inherent
industry risk and specific management knowledge. Adjustments were made for the
current prolonged market conditions.
The period over which the projected cash flows were forecasted is 3 years.
Other significant matters
Following completion of construction of the Group`s office in Port Elizabeth, a
section of the building has been allocated for purposes of rental earnings and
capital appreciation. Accordingly, R14 million has been reclassified from
property, plant and equipment to investment property in the consolidated
statement of financial position.
Subsequent to the transfer of the property as described in the notes above,
borrowings will reduce by R7.3 million.
An amount of R2 666 667, previously included in `other reserves`, has been
included in share capital. This relates to treasury shares acquired in a
specific share buy-back as approved by shareholders on 10 May 2010.
Contingent asset
Future revenue approximating R13 million, to be earned from incentive
applications submitted to regulatory authorities but still awaiting approval for
payment as at the statement of financial position date, has not been recognised
as income in these financial statements in accordance with the Group`s
accounting policy on revenue recognition (2009 Aug: R23 million; 2010 Feb: R13
million).
Subsequent events
No material events have been identified subsequent to the statement of financial
position date of the Group up to the date of this report, other than disclosed
in these condensed financial statements.
Earnings, dividend and net asset value per share
Unaudited Unaudited Audited
31-Aug-10 31-Aug-09 28-Feb-10
Cents Cents Cents
Headline earnings per share 14.3 16.8 46.2
Dividend per share
Interim 8.0 8.0 8.0
Final - - 20.0
8.0 8.0 28.0
Weighted average number of ordinary shares in 27 467 27 979 27 979
issue (`000s)
Headline earnings are reconciled to earnings per the statement of comprehensive
income as follows:
R000 R000 R000
(Loss) / profit attributable to equity (24 759) 4 677 14 159
shareholders of the Company
Goodwill impairments 27 061 - 233
(Profit) / loss on disposal of property, plant (1) 29 27
and equipment
Fair value adjustment on re-measurement of 48 - (95)
disposal group held for sale
Impairment of investment in associates - - 274
Impairment of loans 1 584 - -
Profit on disposal of investments - - (1 670)
Headline earnings for the period 3 933 4 706 12 928
Unaudited Unaudited Unaudited
31-Aug-10 31-Aug-09 28-Feb-10
Net asset value per ordinary share Cents Cents Cents
Net assets 377.8 470.8 486.0
Net tangible assets 140.1 116.4 165.0
Segment report
The Group has four reportable segments within which the Group`s strategic
business units ("SBUs") operate.
The SBUs offer different services and are managed separately as they require
different technology and marketing strategies.
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, interest rate and forex risk management.
Business development
Provide strategic direction, consulting services and management tools to
optimise business systems and processes.
Verification services
Verifies BEE compliance, conducts quality assurance, VAT and customs audits.
Operating segments Investmen Global Business Verificatio Total
t trade developmen n services
incentive services t
s
31 August 2010 - R000 R000 R000 R000 R000
unaudited
Results
Revenue - internal - - 771 - 771
Revenue - external 15 543 13 960 3 504 4 683 37 690
Segment 4 568 6 030 696 (841) 10 453
profit/(loss)
before tax
31 August 2009 -
unaudited
Results
Revenue - internal 180 - 366 - 546
Revenue - external 15 831 12 225 5 516 1 393 34 965
Segment 6 006 4 754 (1 218) (883) 8 659
profit/(loss)
before tax
28 February 2010 -
audited
Results
Revenue - internal 360 - 993 182 1 535
Revenue - external 39 892 26 695 8 580 4 234 79 401
Segment 16 077 8 722 (1 736) (1 587) 21 476
profit/(loss)
before tax
Segmental reconciliations
Unaudited Unaudited Audited
31-Aug-10 31-Aug-09 28-Feb-09
R000 R000 R000
Profit reconciliation
Total profit before tax for reportable 10 453 8 659 21 476
segments
Impairment losses (28 645) - (233)
Unallocated profits 2 865 3 207 7 406
Elimination of intersegment profits (6 718) (5 309) (9 472)
Group (loss) / profit before tax per (22 045) 6 557 19 643
statement of comprehensive income
Transactions with individual clients did not amount to 10% or more of the
Group`s total revenue.
Dividends
The directors of IQuad are pleased to announce that they declared a dividend of
8 cents per share on 12 October 2010 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, 19 November 2010
Trading ex dividend commences Monday, 22 November 2010
Record date Friday, 26 November 2010
Payment date Monday, 29 November 2010
Share certificates may not be dematerialised or rematerialised between Monday,
22 November 2010, and Friday, 26 November 2010, both days included.
For and behalf of the board.
Dave Edwards Frans Botha
(Chief Executive Officer) (Financial Director)
12 October 2010
Port Elizabeth
Designated Advisor: QuestCo (Pty) Ltd
Date: 12/10/2010 16:01:08 Produced by the JSE SENS Department.
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