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IDE
IDE
IDE - Ideco Group Limited - Provisional reviewed annual financial results for
the year ended 31 August 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")
PROVISIONAL REVIEWED ANNUAL FINANCIAL RESULTS FOR THE YEAR
ENDED 31 AUGUST 2010
- Revenue from Group operations increased by 53% to R126.8 million
- EBITDA from Group operations increased to R8.2 million compared to a loss of
R11.5 million for the year ended 31 August 2009
- Ideco AFISwitch (Pty) Limited reported a profit for the first time in its
history
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Reviewed Audited
R`000 Notes 31 Aug 2010 31 Aug 2009
Assets
Non-current assets
Property, plant and equipment 1 10,771 10,210
Investment in associate 2 533 -
Intangible assets 3 62,924 58,724
Deferred tax 9,821 7,481
84,049 76,415
Current assets
Inventories 13,498 12,704
Trade and other receivables 28,211 23,894
Taxation receivable 513 343
Cash and cash equivalents 4,468 8,598
46,690 45,539
Total assets 130,739 121,954
Equity and liabilities
Equity
Share capital 1 1
Share premium 21,286 21,286
Retained income 608 7,494
21,895 28,781
Liabilities
Non-current liabilities
Long-term borrowings 4 40,875 42,996
Deferred tax 6,888 361
47,763 43,357
Current liabilities
Current tax payable 316 325
Trade and other payables 26,515 20,257
Current portion of non-current
liabilities 4 266 238
Bank overdraft 6,928 351
Provisions 1,693 1,354
Other financial liabilities 5 25,363 27,291
61,081 49,816
Total liabilities 108,844 93,173
Total equity and liabilities 130,739 121,954
Net asset value per share (cents) 10.83 14.23
Net tangible asset value per share (cents) (21.74) (18.33)
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Reviewed Audited
year ended year ended
R`000 Notes 31 Aug 2010 31 Aug 2009
Revenue 126,795 83,076
Cost of sales (57,433) (48,806)
Gross profit 69,362 34,270
Other income 519 166
Operating expenses (61,706) (45,923)
Earnings before interest, tax, depreciation
and amortisation 8,175 (11,487)
Depreciation (1,700) (1,105)
Amortisation (5,069) (2,196)
Operating profit/(loss) 1,406 (14,788)
Investment revenue 522 287
Finance costs 6 (7,883) (4,359)
Share of profit of associate company - 2,023
Loss before tax (5,955) (16,837)
Taxation (expense)/credit (931) 4,746
Loss for the year (6,886) (12,091)
Other comprehensive income - -
Total comprehensive loss attributable to
ordinary shareholders (6,886) (12,091)
Loss per share 7
Basic and diluted basic loss per share
(cents) (3.41) (5.98)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Reviewed Audited
year ended year ended
R`000 31 Aug 2010 31 Aug 2009
Cash generated from operations 9,694 (11,652)
Investment revenue 522 287
Finance costs (7,883) (4,359)
Tax paid (4,186) (541)
Net cash flow from operating activities (1,853) (16,265)
Net cash flow from investing activities (4,832) 21,152
Acquisition of property, plant and equipment (2,643) (1,552)
Acquisition of intangible assets (1,999) (1,725)
Proceeds on disposal of property, plant and
equipment 343 1
Acquisition: cash in subsidiary - 20,093
Investment in associated company (533) -
Non-current assets held for sale - 4,335
Net cash flows from financing activities (4,021) 6,152
Repayment of long-term borrowings (2,093) (177)
Repayment of other financial liabilities (1,928) 6,329
Total cash movement for the period (10,706) 11,039
Cash at the beginning of the period 8,247 (2,792)
Total cash at end of period (2,459) 8,247
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Reviewed Audited
year ended year ended
R`000 31 Aug 2010 31 Aug 2009
Ordinary share capital
Balance at beginning of period 1 1
Issue of shares - -
Balance at end of period 1 1
Share premuim
Balance at beginning of period 21,286 21,286
Issue of shares - -
Balance at end of period 21,286 21,286
Retained income
Balance at beginning of period 7,494 19,585
Loss for the period (6,886) (12,091)
Balance at end of period 608 7,494
Total shareholders` equity at end of period 21,895 28,781
SEGMENTAL ANALYSIS
R`000
Biometric Secure
readers and credentialing Biometric
solutions services projects
Reviewed 2010
Revenue from external customers 52,544 63,068 11,183
Depreciation and amortisation (75) (5,315) (935)
Operating profit/(loss) 1,846 14,290 (2,181)
Investment income 30 218 123
Finance costs (2) (6,913) -
Profit/(loss) before tax 873 4,596 (2,057)
Taxation (expense)/credit (601) (3,389) 527
Total assets 27,341 63,857 6,859
Total liabilitiies (19,823) (76,345) (2,117)
Audited 2009
Revenue from external customers 58,571 17,716 6,789
Depreciation and amortisation (54) (1,793) (859)
Operating profit/(loss) 2,107 (1,421) (1,526)
Investment income 6 228 18
Finance costs - (3,459) -
Loss before tax (4,387) (4,651) (1,008)
Taxation credit 1,008 1,294 272
Total assets 21,441 59,689 8,621
Total liabilitiies (12,543) (71,346) (2,226)
Corporate Total
Reviewed 2010
Revenue from external customers - 126,795
Depreciation and amortisation (444) (6,769)
Operating profit/(loss) (12,549) 1,406
Investment income 151 522
Finance costs (968) (7,883)
Profit/(loss) before tax (9,367) (5,955)
Taxation (expense)/credit 2,532 (931)
Total assets 32,682 130,739
Total liabilitiies (10,559) (108,844)
Audited 2009
Revenue from external customers - 83,076
Depreciation and amortisation (595) (3,301)
Operating profit/(loss) (13,948) (14,788)
Investment income 35 287
Finance costs (900) (4,359)
Loss before tax (6,791) (16,837)
Taxation credit 2,172 4,746
Total assets 32,203 121,954
Total liabilitiies (7,058) (93,173)
NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION AND CONSOLIDATED
STATEMENT OF COMPREHENSIVE INCOME
R`000 Aug 2010 Aug 2009
1. Property, plant and equipment
Land and buildings 7,350 7,002
Furniture and fixtures 481 644
Motor vehicles 4 435
Office equipment 235 217
IT equipment 2,701 1,912
10,771 10,210
2. Investment in associate
Shares at cost * -
Loan to associate 533 -
533 -
* Less than R1 000.
3. Intangible assets
Computer software 7,955 4,734
Right of use 14,528 15,890
Intellectual property rights 1,500 1,500
Trademark 7,187 7,700
Trade name 1,473 -
Customer base 12,355 -
Goodwill on acquisition 17,926 28,900
62,924 58,724
4. Long-term borrowings
Secured at amortised cost: Absa Bank Limited 2,398 2,634
Less: Current portion included in current
liabilities (266) (238)
2,132 2,396
Cumulative redeemable preference shares issued to
NEF 38,743 40,600
40,875 42,996
5. Other financial liabilities
Morpho South Africa (Pty) Limited 25,363 24,420
Kroll Associates (Pty) Limited - 2,871
25,363 27,291
6. Finance costs
Interest (1,930) (4,359)
Dividends on "A" cumulative redeemable preference
shares (2,810) -
Dividends on "B" cumulative redeemable preference
shares (3,143) -
(7,883) (4,359)
7. Loss per share
Calculation of headline loss
Total comprehensive loss attributable to ordinary
shareholders (6,886) (12,091)
Adjusted for: (net of tax)
Impairment of intangible assets - 563
Loss on sale of property, plant and equipment 23 12
Headline loss (6,863) (11,516)
Headline and diluted headline loss per share
(cents) (3.39) (5.69)
Number of shares
- Issued and weighted 202,222,222 202,222,222
COMMENTARY
INTRODUCTION
The reviewed condensed consolidated provisional annual financial results for
Ideco, in respect of the year ended 31 August 2010 with the comparative results
for the year ended 31 August 2009 are set out above.
BASIS OF PREPARATION
The condensed consolidated annual financial statements have been prepared using
accounting policies consistent with International Financial Reporting Standards
("IFRS"), the AC 500 standards as issued by the Accounting Practices Board and
in accordance with the requirements of IAS 34: Interim Financial Reporting, the
South African Companies Act and the JSE Limited Listings Requirements. The
annual financial statements are prepared in thousands of South African Rand
("ZAR`000").
SIGNIFICANT ACCOUNTING POLICIES
The accounting policies adopted in the preparation of these provisional annual
financial statements have been consistently applied throughout the Group and are
consistent with those used to prepare the annual financial statements for the
year ended 31 August 2009.
The provisional condensed consolidated annual financial statements have been
reviewed by BDO South Africa Incorporated and their unmodified review report is
available for inspection at the Company`s registered office, 13 Wellington Road,
Parktown, Johannesburg, 2193.
FINANCIAL OVERVIEW
Earnings before interest, tax, depreciation and amortisation ("EBITDA")increased
by R19,7 million compared to the previous year. This improvement can largely be
ascribed to the increase in EBITDA of the credentialing services segment. The
increase in EBITDA of this segment was due to the fact that the results of
Managed Integrity Evaluation (Pty) Limited ("MIE") were included for the full
financial year compared to only two months in the year ended 31 August 2009. The
performance of Ideco AFISwitch (Pty) Limited ("AFISwitch"), which is also
included in this segment, also improved compared to the previous year end and
AFISwitch reported a profit for the first time in its history.
The operating results of the biometric products, biometric solutions and
projects segments were in line with the previous year`s results. Cost savings of
R1,4 million, were primarily achieved by not replacing personnel that had
resigned.
The total comprehensive loss attributable to ordinary shareholders decreased by
R5,2 million to R6,9 million compared to the previous year. Although EBITDA
increased by R19,7 million, the increase was negated by higher depreciation and
amortisation (R3,5 million), finance costs (R3,5 million) and a tax charge
instead of a tax credit (R5,7 million). All these increases are due to the
acquisition of MIE.
The increase in intangible assets of R4,2 million from the previous financial
year relates to the acquisition of MIE, which was recognised in terms of IFRS 3.
The loan to an associate consists of a loan to Biometrical Medical Solutions
(Pty) Limited ("Biomed"). Ideco acquired 25% of the issued share capital of
Biomed on 28 September 2009. In terms of Ideco`s accounting policies, losses
made by an associate are recognised to the extent of the investment in the
associate.
Trade and other receivables are R4,3 million higher than in the previous year,
which is due to the increase in Group revenue. This is also the reason for the
increase in trade and other payables.
The Group`s net cash position decreased by R10,7 million during the year. Cash
generated by operations amounted to R9,7 million, which was utilised by finance
costs, tax paid, investment in property, plant and equipment, intangible assets
and a loan to an associate. Loan repayments consumed a further R4,0 million.
Details of the above cash flows are reflected in the above condensed
consolidated statement of cash flows. The major item included in long-term
borrowings 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 on the "A"
preference shares and a rate that will give the NEF an internal rate of return
of 18% on its total investment on the "B" preference shares. The capital amount
outstanding at 31 August 2010 amounted to R35,6 million (R5 million was redeemed
on 1 November 2009) and provision of R3,1 million has been made for the dividend
on the "B" preference shares, which will only be payable on the final redemption
date which is 1 September 2016. The other long-term borrowing consists of a bond
registered over a property in Centurion, with an outstanding balance of R2,4
million.
The deferred tax liability increased by R6,5 million as a result of the final
valuation of business combination balances with the acquisition of MIE.
OPERATIONS
Biometric readers and solutions
During the economic downturn the Group experienced a 10% decrease in revenue.
The Group`s manufacturing supplier also experienced shortages of certain
components required for the production of the readers. At 31 August 2010, the
Company had unfulfilled orders of R3,6 million on its books, which would
normally have been executed, had it not been for these shortages. Had these
deliveries taken place, the decrease in sales would have been limited to 4%.
Cost savings of just under R1 million made up for the reduced gross profit, with
the result that the segment`s operating profit was only R261 000 lower than that
of the previous year.
Secure credentialing services
This segment comprises of two businesses.AFISwitch provides fingerprint-based
criminal record checks in terms of a long- term agreement with the South African
Police Service ("SAPS"). MIE provides background screening services for
employers on existing and prospective employees. This is the first reporting
period where MIE`s revenue is included in the segmental results for the full
year, as the company was acquired as a wholly-owned subsidiary with effect from
1 July 2009.
MIE`s revenue was marginally higher for the year ended 31 August 2010 compared
to the year ended 31 August 2009.
The revenue of AFISwitch included a non-recurring amount of R6,6 million in
respect of work done for SAPS AFIS upgrade. Revenue from criminal background
checks increased by 39% for the year ended 31 August 2010 compared to the
revenue for the year ended 31 August 2009.
Biometric projects
Revenue generated by this segment increased by 65% compared to the revenue
generated for the year ended 31 August 2009. The main reason for this increase
is the commencement of the three-year contract with the Bombela Operating
Company for the supply of the Gautrain smartcards and the fact that revenue from
the Namibian drivers licence contract was included for a full year in comparison
to only nine months in the prior comparative financial period.
PROSPECTS
Biometric readers and solutions
It is expected that segmental revenue in the private sector will improve
moderately. Ideco`s certified partners have however submitted several proposals
to their customers for new biometric applications in respect of risk management
and cost control.
Ideco has also been appointed, by several suppliers who are contracted by
government, as a sub-contractor to supply biometric components and systems for
various security projects. Therefore, management is confident that stronger
sales to the public sector will resume in the year ending 31 August 2011.
Secure credentialing services
The criminal record checking service, conducted by AFISwitch, will continue to
show strong growth. AFISwitch has commenced with 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 is still underway and
will continue into the 2011 calendar year. The agreement, concluded in May 2009,
for the management of more than 300 000 identity profiles will also be
implemented during 2011, further providing predictable annuity revenue flow to
the Group.
MIE`s revenue for the first quarter of the financial year ending 31 August 2011
showed an increase of more than 50% over revenue for the first quarter of the
year ended 31 August 2010. Although off a low base, it is expected that revenue
for the full financial year will show healthy growth.
Biometric projects
In addition to the Namibian drivers licence project, Ideco is currently awaiting
the adjudication of several public sector tenders which, if awarded, will
enhance the results of this segment.
GOING CONCERN
The directors have considered the Group`s cash flow projections and budgets for
the next two years and in light of contracts concluded, an improvement in the
business sectors where the Group operates and cost cutting measures to be
instituted are satisfied that the Group will continue to operate as a going
concern in spite of the loss incurred for the year ended 31 August 2010. It
should be noted that an amount of R4,9 million included in the loss after tax of
R6,9 million is made up of non-cash flow items, consisting of depreciation,
amortisation and a provision for the "B" preference share dividend due to the
NEF, which is only payable on 1 September 2016, minus a credit to deferred tax.
STANDARDS ADOPTED DURING THE YEAR
During the year Ideco adopted IAS 1 and IFRS 8. IAS 1 has affected the
terminology used and the presentation of the comprehensive income and the
statement of changes in equity. The adoption of IFRS 8 has required additional
disclosure for segmental reporting purposes. Neither one of these has had an
effect on the financial position or financial results of the Group.
CAPITAL COMMITMENTS
There are no capital commitments that have been approved by the directors or
other material capital commitments as at the date of this report.
SUBSEQUENT EVENTS
There are no material subsequent events to report on.
RELATED PARTY TRANSACTIONS
There were no material related party transactions.
DEBT DEFAULT OR BREACH OF DEBT COVENANT
In the 2009 annual report it was reported on page 15 in the directors` report
that the repayment schedule of the loan due to Morpho South Africa (Pty) Limited
("Morpho")(see note 5) had been rescheduled. The payment schedule as stated in
the post balance sheet events paragraph contained in the directors` report is
being re-negotiated with Morpho to be linked to revenue flowing from criminal
record checks being performed by AFISwitch. This loan is in respect of the
business of AfiSwitch.
DIVIDEND
No dividend has been declared for the year.
CHANGES TO THE BOARD
There were no changes to the board of directors during the year.
CORPORATE GOVERNANCE
The directors and senior managers of the Company endorse the Code of Corporate
Practices and Conduct as set out in the King III Report on Corporate Governance.
By order of the board
Vhonani Mufamadi H B Aucamp
CEO CFO
10 December 2010
Designated advisor:
QuestCo Sponsors (Pty) Limited
Date: 10/12/2010 15:19:01 Produced by the JSE SENS Department.
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