| Tue 13 Feb 2001, 0:00 | | Mgx Holdings Limited - Interim Results |
|
MGX Holdings Limited
("MGX")
Registration number 83/12697/06
interim results for the six months ended 31 December 2000
* Operating income up 29%
* Earnings per share up 20%
* Summarised consolidated income statement
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
31 December 31 December 30 June
% 2000 1999 2000
change R'000 R'000 R'000
Revenue 78 325 228 183 225 459 048
Operating income
before depreciation 57 130 43 187 86 123
Depreciation 9 709 6 496 13 105
Operating income 29 47 421 36 691 73 018
Net finance (expense)/
income (4 870) 6 036 11 860
Income before taxation 42 551 42 727 84 878
Taxation 10 737 11 533 19 895
Income after taxation 31 814 31 194 64 983
Share of income of
associates 6 839 561 4 107
Outside shareholders'
share of income (1 098) (943) (946)
Attributable income 37 555 30 812 68 144
Weighted average number
of ordinary shares in
issue (thousands) 46 886 46 365 46 262
Earnings per ordinary
share (cents) 20 80,1 66,5 147,3
Summarised consolidated balance sheet
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
31 December 31 December 30 June
2000 1999 2000
R'000 R'000 R'000
Assets
Property, plant and equipment 182 077 111 751 166 853
Financial assets 217 072 57 027 39 884
Current assets 228 669 228 505 344 602
Inventories 26 708 28 808 42 256
Trade and other receivables 160 053 86 055 151 767
Cash and cash equivalents 41 908 113 642 150 579
627 818 397 283 551 339
Equity and liabilities
Ordinary shareholders' interest 314 270 280 156 269 408
Outside shareholders' interest 4 082 3 567 2 984
Net deferred taxation (asset)/
Liability (12 930) 815 (17 062)
Non-current liabilities 88 193 33 758 92 967
Interest-bearing borrowings 88 193 33 758 74 967
Non-interest-bearing borrowings 18 000
Current liabilities 234 203 78 987 203 042
Trade and other payables 114 198 70 111 110 493
Non-interest-bearing borrowings 22 030 - 35 000
Other short-term loans - - 16 999
Taxation 8 454 8 876 12 774
Bank overdrafts 89 521 - 27 776
627 818 397 283 551 339
Net tangible asset value per
ordinary share (cents) 667,0 594,5 571,7
Summarised consolidated cash flow statement
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
31 December 31 December 30 June
2000 1999 2000
R'000 R'000 R'000
Cash generated from operations
before working capital changes 55 209 40 502 88 160
Working capital changes 13 901 (5 220) (28 037)
Net finance income (4 870) 6 036 9 243
Taxation paid (15 227) (14 470) (18 260)
Cash flows from operating
Activities 49 013 26 848 51 106
Cash flows from investing
Activities (226 921) (49 272) (108 462)
Cash flows from financing
Activities 7 492 4 210 48 303
Net decrease in cash and cash
Equivalents (170 416) (18 214) (9 053)
Cash and cash equivalents at
beginning of period 122 803 131 856 131 856
Cash and cash equivalents at
end of period (47 613) 113 642 122 803
Statement of changes in equity
Non-
distri- Distri-
Share Share butable butable
Capital premium reserve reserve Total
R'000 R'000 R'000 R'000 R'000
Balance at 30 June 2000 290 41 574 192 227 352 269 408
Attributable earnings 37 555 37 555
Issue of new capital 4 7 303 7 307
Balance at 31 December 2000 294 48 877 192 264 907 314 270
Trading results
The results for the six months under review reflect some of the strategic
changes initiated during the previous year, such as the group's investments in
Didata Ltd (UK) and Drive Control Corporation (Pty) Ltd ("DCC"). These
contributed to the substantial increase in revenue of 78%, from R183 million to
R325 million.
Operating profit increased 29% from R36,7 million to R47,4 million, and is
indicative of the group's solid organic growth in its core activities. The
operating margin showed a small decrease from 15,9% for the year to June 2000
to 14,7% for the six-month period because of the inclusion of DCC's high-volume
business. The broad stability of the operating margin illustrates the group's
emphasis on providing value-added, higher margin information management
solutions.
The turnaround from net finance income of R6 million to interest paid of R4,9
million reflects the share investment in Computer Configurations Holdings Ltd
("CCH"), capital expenditure and payment of vendor loans. Operating cash flow
amounted to R55 million (R49 million after tax, interest and working capital
changes), generated from attributable income of R38 million for the period, and
reflects the powerful cash-generating strength of group companies.
The gearing ratio is currently 30%, with total borrowings standing at R135,8
million. After the acquisition of CCH, MGX's total debt will increase to
approximately R210 million. The debt-equity ratio of the enlarged group will be
approximately 28%. It was a considered decision of management to take on a
reasonable level of debt, with the objective of maximising future earnings per
share on a conservative basis, given the strong cash generating capabilities of
group companies.
Income from associates of R6,8 million was lower than expected, as both CCH and
EC-Hold Ltd ("EC-Hold") performed below expectations for the six months. This
is in line with the announcement published on 27 December 2000 in which
shareholders were advised that the inclusion of CCH's results may have a
short-term dilutionary effect on MGX's historic earnings growth. The valuation
of the associates has been reviewed in accordance with AC128 regarding
impairment of assets. Based on forecast earnings and cash flows the directors
are of the opinion that no material adjustment is necessary to the current
valuations.
CCH businesses
Shareholders have been advised that MGX has made an offer to acquire all the
businesses of CCH (collectively "acquisition"), excluding Infracom (Pty) Ltd.
MGX management had determined that a merger of the two businesses presented MGX
with the opportunity to achieve its strategic objectives several years ahead of
plan. MGX commenced with a programme of acquiring a substantial stake in CCH
through share purchases on the open market. When the stake reached a critical
level, MGX was able to conclude the acquisition within its targeted range,
including all interest earnings foregone. Once it became evident that CCH's
performance for the six-month period to December 2000 would be below
expectations, MGX's acquisition price was reduced by R86 million. Despite CCH's
short-term performance, the rationale for the acquisition remains intact.
With MGX moving more into value-added applications, the CCH businesses add
depth of resources, skills and infrastructure. Together, MGX and CCH can
achieve critical mass in this fast changing sector. The combination of the
talents and resources of the two organisations is expected to facilitate the
sustainability of MGX's long-term earnings growth trend.
The Competitions Commission has approved MGX's acquisition of the CCH
businesses and shareholders are expected to ratify the acquisition in a general
meeting to be held on 21 February 2001, to be effective from 1 March 2001.
EC-Hold
Certain EC-Hold shareholders lodged a complaint with the Securities Regulation
Panel alleging that MGX and certain parties acting in concert agreed to
purchase shares in EC-Hold in order to acquire control. The board of MGX
refutes this and will defend the allegations vigorously. MGX has sought senior
counsel opinion on the matter and the directors are confident that the
allegations can be successfully rejected.
Provided that these allegations prove groundless, MGX, subject to any statutory
requirement that may exist, will be in a position to decide whether to proceed
with the intention to make an offer to EC-Hold shareholders, to retain its
current investment in EC-Hold, to reduce it or to unbundle it to MGX
shareholders.
Staff
Current trading activities continue to reflect the group's position as the
leading supplier of information management systems and technology in its
sector. The board thanks the people of MGX at every level of the organisation
for their dedication and support and, in particular, for their total confidence
in the future of MGX, despite the distractions of the EC-Hold matter. This
thanks extends to the people who are joining the greater MGX team through the
acquisition of CCH. With their enthusiasm for the acquisition and their efforts
to ensure its success, the enlarged group can move decisively to consolidate
and develop its position of market leadership in its chosen sectors.
Prospects
The enlarged MGX group continues to position itself in sectors of the
information technology ("IT") industry where growth over the next five years is
forecast to accelerate. IT expenditure on data storage and related services is
expected to grow faster than any other areas of IT spend over the next three
years. Worldwide, IT companies which have proprietary software and systems are
more easily able to achieve and maintain market leadership in their sectors.
With CCH, the group has acquired a vast resource in this area, and has the
skills and knowledge to ensure that its software development expertise remains
at the forefront of information management technology.
In the short term the group has the substantial task of refocusing and
integrating the combined operations of CCH and MGX. Every effort will be made
to prevent this having a dilutionary effect on MGX's targeted organic growth
rate. The operations of CCH are expected to make a significant contribution to
MGX's earnings growth in the future.
Dividend
The policy of the group remains that the interests of shareholders are best
served if MGX does not pay a dividend or issue capitalisation shares. Cash
generated will be reinvested in the group.
Change to the date of the general meeting of MGX shareholders
Further to the announcement, published by MGX in the press on 27 December 2000,
concerning MGX's acquisition of certain businesses of CCH, shareholders of MGX
are advised that the dates for the lodging of forms of proxy and of the general
meeting have been changed. The new dates are set out below and were included in
the MGX circular to shareholders dated 26 January 2001.
The last day for lodging of forms of proxy in respect of the resolutions to be
proposed at the general meeting of MGX shareholders, is no later than 10:00 on
Monday, 19 February 2001.
The general meeting of MGX shareholders is to be held at 10:00 on Wednesday, 21
February 2001.
Ronnie Price Chris Hills Dan McMahon
Chairman Chief Executive Chief Operating Officer 12 February 2001
Directors: R S Price (Chairman), C S Hills (Chief Executive), D J McMahon
(Chief Operating Officer), D E Baloyi, J M Judin, R D Shirley, D C L Wassung, N
J Webster, L Wengrowe
Transfer secretaries: Mercantile Registrars Limited, 8th Floor, 11 Diagonal
Street, Johannesburg, 2001
Registered office: 22 Milkyway Avenue, Linbro Business Park, 2065. PO Box 1697,
Bramley, 2018www.mgx.co.zaGraphicor 22645
