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IDE
IDE
IDE - Ideco Group Limited - Unaudited consolidated results for the six months
ended 28 February 2011
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 2011.
CONDENSED CONSOLIDATED STATEMENT OF Unaudited Unaudited Audited
FINANCIAL POSITION
R`000 Notes 28 Feb 28 Feb 31 Aug
2011 2010 2010
Assets
Non-current assets
Property, plant and 1 10,033 9,720 10,771
equipment
Investment in associate 2 533 333 533
Intangible assets 3 60,593 58,318 62,924
Deferred tax 11,001 7,997 9,821
82,160 76,368 84,049
Current assets
Inventories 8,106 13,305 13,498
Trade and other 31,553 27,466 28,211
receivables
Taxation receivable - 343 513
Cash and cash equivalents 4,376 4,080 4,468
44,035 45,194 46,690
Total assets 126,195 121,562
130,739
Equity and liabilities
Equity
Share capital 1 1 1
Share premium 21,286 21,286 21,286
(Accumulated (488) 7,680 608
loss)/Retained income
20,799 28,967 21,895
Liabilities
Non-current liabilities
Long-term borrowings 4 42,296 37,871 40,875
Deferred tax 6,521 361 6,888
48,817 38,232 47,763
Current liabilities
Current tax payable 826 950 316
Trade and other payables 22,264 17,221 26,515
Current portion of non- 4 287 250 266
current liabilities
Bank overdraft 5,999 9,064 6,928
Provisions 1,840 1,514 1,693
Other financial 5 25,363 25,364 25,363
liabilities
56,579 54,363 61,081
Total liabilities 105,396 92,595
108,844
Total equity and 126,195 121,562 130,739
liabilities
Net asset value per share 10.29 14.32 10.83
(cents)
Net tangible asset value per (21.89) (18.29) (21.74)
share (cents)
CONDENSED CONSOLIDATED STATEMENT OF Unaudited Unaudited Audited
COMPREHENSIVE INCOME
six six year
months months ended
ended ended
R`000 28 Feb 28 Feb 31 Aug
2011 2010 2010
Revenue 71,822 57,700
126,795
Cost of sales (23,336) (57,433)
(33,554)
Gross profit 38,268 34,364 69,362
Other income 140 82 519
Operating expenses (28,855) (61,706)
(31,862)
Earnings before interest, tax, 6,546 5,591 8,175
depreciation and amortisation
Depreciation (899) (736)
(1,700)
Amortisation (2,450) (1,134)
(5,069)
Operating profit 3,197 3,721 1,406
Investment revenue 101 140 522
Finance costs 6 (3,369) (2,838)
(7,883)
(Loss)/profit before tax (71) 1,023
(5,955)
Taxation (1,025) (837) (931)
(Loss)/profit for the (1,096) 186 (6,886)
period
Other comprehensive income - - -
Total comprehensive (loss)/profit (1,096) 186 (6,886)
attributable to ordinary shareholders
(Loss)/earnings per share 7
Basic and diluted basic (0.54) 0.09 (3.41)
(loss)/profit per share
(cents)
CONDENSED CONSOLIDATED Unaudited Unaudited Audited
STATEMENT OF CASH FLOWS
six six year
months months ended
ended ended
R`000 28 Feb 28 Feb 31 Aug
2011 2010 2010
Cash generated/(utilised) 4,491 (1,446) 9,694
by operations
Investment income 101 140 522
Finance costs (3,369) (2,838)
(7,883)
Taxation paid (1,549) (728)
(4,186)
Net cash flow from (326) (4,872)
operating activities (1,853)
Net cash flow from (279) (1,307)
investing activities (4,833)
Acquisition of property, (161) (246)
plant and equipment (2,643)
Acquisition of (118) (728)
intangible assets (1,999)
Proceeds on disposal of - - 342
property, plant and equipment
Investment in associated - (333) (533)
company
Net cash flows from 1,442 (7,052) (4,021)
financing activities
Repayment of long-term (129) (5,125) (2,093)
borrowings
Movement of other 1,571 (1,927) (1,928)
financial liabilities
Total cash movement for 837 (13,231) (10,707)
the period
Cash at the beginning of (2,460) 8,247 8,247
the period
Total cash at end of (1,623) (4,984) (2,460)
period
CONDENSED CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
Unaudited Unaudited Audited
year year year
ended ended ended
R`000 28 Feb 28 Feb 31 Aug
2011 2010 2010
Ordinary share capital
Balance at beginning of 1 1 1
period
Issue of shares - - -
Balance at end of period 1 1 1
Share premuim
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
(Accumulated
loss)/Retained income
Balance at beginning of 608 7,494 7,494
period
(Loss)/profit for the (1,096) 186 (6,886)
period
Balance at end of period (488) 7,680 608
Total shareholders equity at 20,799 28,967 21,895
end of period
NOTES TO THE STATEMENT OF FINANCIAL POSITION AND CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
R`000 Feb-11 Feb-10 Aug 2010
1.Property, plant and
equipment
Land and buildings 7,329 6,999 7,350
Furniture and fixtures 379 544 481
Motor vehicles 3 378 4
Office equipment 201 200 235
IT equipment 2,121 1,599 2,701
10,033 9,720 10,771
2.Investment in associate
Shares at cost * * *
Loan to associate 533 333 533
533 333 533
* Less than R1 000.
3.Intangible assets
Computer software 7,330 5,009 7,955
Right of use 13,847 15,209 14,528
Intellectual property 1,500 1,500 1,500
rights
Trademark 6,930 7,700 7,187
Trade name 1,391 - 1,473
Customer base 11,669 - 12,355
Goodwill on acquisition 17,926 28,900 17,926
60,593 58,318 62,924
4.Long-term borrowings
Secured at amortised cost: 2,269 2,521 2,398
Absa Bank Limited
Less: Current portion
included in current
liabilities (287) (250) (266)
1,982 2,271 2,132
Cumulative redeemable 40,314 35,600 38,743
preference shares issued to NEF
42,296 37,871 40,875
5.Other financial
liabilities
Morpho South Africa (Pty) 25,363 25,364 25,363
Limited
6.Finance costs
Interest (537) (1,390) (1,930)
Dividends on "A" cumulative (1,261) (1,448) (2,810)
redeemable preference shares
Dividends on "B" cumulative (1,571) - (3,143)
redeemable preference shares
(3,369) (2,838) (7,883)
7.(Loss)/earnings per
share
Calculation of headline
(loss)/earnings (R`000)
Total comprehensive (1,096) 186 (6,886)
(loss)/profit attributable to
ordinary shareholders
Adjusted for (net of tax):
Loss on sale of property, - - 23
plant and equipment
Headline (loss)/profit (1,096) 186 (6,863)
Headline and diluted headline (0.54) 0.09 (3.39)
(loss)/earnings per share
(cents)
Number of shares
- Issued and weighted 202,222,222 202,222,222 202,222,222
SEGMENTAL
ANALYSIS
R`000
Biometric Secure Biometric Corporate Total
readers Credenti projects
and -aling
solutions services
Unaudited 28
February 2011
Revenue from 31,603 34,460 5,759 - 71,822
external
customers
Depreciation and (48) (2,835) (320) (146) (3,349)
amortisation
Operating 2,259 8,332 (1,567) (5,827) 3,197
profit/(loss)
Investment - 101 - - 101
income
Finance costs - (2,832) - (537) (3,369)
Profit/(loss) 1,259 4,101 (1,567) (3,864) (71)
before tax
Taxation (515) (2,018) 439 1,069 (1,025)
(expense)/credit
Total assets 25,497 56,973 9,602 34,123 126,195
Total (13,549) (2,458) (9,709)
liabilitiies (79,680) (105,396)
Unaudited 28
February 2010
Revenue from 23,375 32,045 2,280 - 57,700
external
customers
Depreciation and (33) (1,203) (397) (237) (1,870)
amortisation
Operating 1,106 11,187 (1,181) (7,391) 3,721
profit/(loss)
Investment - 134 - 6 140
income
Finance costs - (2,392) - (446) (2,838)
Profit/(loss) 106 7,929 (1,181) (5,831) 1,023
before tax
Taxation (30) (2,770) 330 1,633 (837)
(expense)/credit
Total assets 21,859 55,083 7,840 36,780 121,562
Total (10,275) (259) (12,695) (92,595)
liabilitiies (69,366)
Audited 31
August 2010
Revenue from 52,544 63,068 11,183 - 126,795
external
customers
Depreciation and (75) (5,315) (935) (444) (6,769)
amortisation
Operating 1,846 14,290 (2,181) (12,549) 1,406
profit/(loss)
Investment 30 218 123 151 522
income
Finance costs (2) (6,913) - (968) (7,883)
Profit/(loss) 873 4,596 (2,057) (9,367) (5,955)
before tax
Taxation (601) (3,389) 527 2,532 (931)
(expense)/credit
Total assets 27,341 63,857 6,859 32,682 130,739
Total (19,823) (2,117) (10,559)
liabilitiies (76,345) (108,844)
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: this segment focuses on selling biometric products
to the private and public sectors;
* Credentialing services: this segment provides criminal record checks
and background screening services to employers; and
* Biometric solutions and projects: this segment focuses on large
biometric projects and related solutions in the public and private
sectors.
The accounting policies used for the above 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 (Pty) Limited and Managed Integrity Evaluation ("MIE").
Approximately a quarter of the revenue generated by the biometric solutions and
projects segment was generated in Namibia with the Namibian drivers 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 2011.
BASIS OF PREPARATION
The condensed consolidated financial statements have been prepared using
accounting policies consistent with International Financial Reporting Standards
("IFRS"), the AC500 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
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 2010.
These interim results 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 2010:
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
Earnings before interest, tax, depreciation and amortisation ("EBITDA") of R6,5
million was achieved for the six months ended 28 February 2011, compared to R5,6
million for the comparative six months period ended 28 February 2010, this
represents an increase of 17%. EBITDA for the full financial year ended 31
August amounted to R8,2 million. In spite of the increase in EBITDA, there was a
total comprehensive loss attributable to ordinary shareholders of R1,1 million,
compared to a profit of R186 000 for the corresponding six month reporting
period. This can be mainly ascribed to higher amortisation charges (R1,3
million) and finance charges as a result of the acquisition of MIE.
EBITDA of the biometric readers and solutions segment increased by 102% compared
to the corresponding six months ended 28 February 2010, while the other two
segments showed decreases of 9,9% (secure credentialing) and 59% (biometric
projects) respectively. Corporate expenses were 20,5% lower than those of the
comparable period ended 28 February 2010. EBITDA for the secure credentialing
segment included once-off income of R6,6 million for the six months ended 28
February 2010 and R1,9 million for the six months ended 28 February 2011
respectively, in respect of work done for the SAPS AFIS upgrade. If this once-
off income item is excluded, EBITDA for the secure credentialing segment would
have increased by 62% compared to the corresponding six months period ended 28
February 2010.
Group revenue increased by 24% from R57,7 million to R71,8 million. Revenue of
biometric readers and solutions increased by R8,2 million (35%) as a result of a
turn-around from the economic downturn experienced in respect of the six months
ended 28 February 2010. Revenue of secure credentialing services increased
marginally by R2,5 million (7,5%), however if the adjustment for once-off
income, referred to above, had been made, the increase in revenue would have
been 28%. Revenue of biometric projects increased by 153%, which can be ascribed
to sales of Gautrain smartcards.
The gross profit percentage decreased from 60% to 53% because biometric products
and projects (with a lower gross profit percentage than secure credentialing
services) made up a greater percentage of the sales mix compared to the six
months ended 28 February 2010.
Non-current assets increased by R5,7 million as at 28 February 2011 compared to
28 February 2010, mainly as a result of increases in intangible assets and
deferred tax assets. Intangible assets increased by R2,3 million. The major
addition to intangible assets consisted of computer software. The composition of
the trade mark, the trade name, customer base and goodwill changed as indicated
in note 3, as a result of the final purchase price allocation on the acquisition
of MIE. The deferred tax asset increased by R3 million, mainly as a result of an
additional provision of R2 million in Ideco.
Trade and other receivables increased by R4,1 million (15%), which was in line
with the increase in revenue. Inventories were managed more tightly, with the
result that the investment in inventories was reduced by R5,2 million from R13,3
million to R8,1 million.
Long-term borrowings increased by R4,4 million mainly as a result of the
provision of R4,7 million for the dividend on the "B" cumulative preference
share issued to the National Empowerment Fund ("NEF"). Deferred tax liabilities
increased from R361 000 to R6,5 million as a result of the valuation of business
combination balances with the acquisition of MIE.
Trade and other payables increased by R5,2 million as a result of the increase
in sales and a liability in the biometric projects segment in respect of the
purchase of Gautrain smartcards.
The other financial liability consists of an amount of R25,4 million due to
Morpho South Africa (Pty) Limited ("Morpho") which was taken over in respect of
the SAPS AFIS. In the 2010 annual report it was reported that the loan was being
restructured to reflect the original intention of the parties, namely that the
loan will be repaid from revenue flowing from criminal record checks performed
by Ideco AFISwitch (Pty) Limited ("Ideco AFISwitch") . No agreement on the
payment terms has been reached with Morpho and the payment terms are therefore
in dispute. The agreement with Morpho contains an arbitration clause to settle
disputes between the parties.
PROSPECTS
Biometric Products
Management is confident that the growth in revenue will continue based on orders
received and not yet executed.
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. The first delivery under one of these contracts
has been executed and it is expected that there will be a steady flow of orders
to be executed under this contract over the next twelve to twenty four months.
Credentialing Services
The criminal record checking service, conducted by Ideco AFISwitch, will
continue to grow. This company has completed 66% of the implementation of the
service to the Department of Transport for Professional Drivers Permits. Only
43% of the potential revenue from this source is currently being achieved, since
all testing stations where the necessary hardware have been installed, are not
yet making full use of the service. Management is currently addressing this
problem, and is confident that it will be resolved soon.
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 drivers 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. An
increase in revenue is expected from this contract in June 2011, when the rest
of the Gautrain rail lines will be opened.
CAPITAL COMMITMENTS
There are no capital commitments that have been approved by the directors as at
the date of this report.
EVENTS SUBSEQUENT TO THE END OF THE REPORTING PERIOD
It was previously reported that Ideco had concluded a memorandum of
understanding with MorphoTrak Incorporated, the USA subsidiary of Safran Morpho,
France, to explore the US market for the establishment of a joint venture to
distribute Morpho biometric scanners in that market. Initial indications were
that such a joint venture will be successful, but following Morpho`s pending
acquisition of the US group, L1 Identity Solutions Inc, Morpho`s approach to the
access control market in the USA has changed, which will result in the
termination of the joint venture.
The directors are not aware of any significant events that have occurred between
28 February 2011 and the date of this report that may materially affect the
results of the group for the period under review or their financial position as
at 28 February 2011 other than noted above.
DIVIDEND
No dividend has been declared for the period.
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
31 May 2011
Designated advisor: Questco Sponsors (Pty) Ltd
Date: 31/05/2011 16:00:12 Produced by the JSE SENS Department.
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