| Tue 29 Nov 2011, 16:01 | | IDE - Ideco Group Limited - Provisional reviewed consolidated results for the |
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IDE
IDE
IDE - Ideco Group Limited - Provisional reviewed consolidated results for the
year ended 31 August 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")
PROVISIONAL REVIEWED CONSOLIDATED RESULTS for the year ended 31 August 2011
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Reviewed Audited
Notes 31 Aug 2011 31 Aug 2010
Assets
Non-current assets R`000
Property, plant and equipment 1 9 809 10 771
Investment in associate 2 - 533
Intangible assets 3 54 752 62 924
Deferred tax 11 245 9 821
75 806 84 049
Current assets
Inventories 2 163 13 498
Trade and other receivables 22 146 28 211
Taxation receivable - 513
Cash and cash equivalents 3 059 4 468
27 368 46 690
Assets of disposal group 8 16 932 -
Total assets 120 106 130 739
Equity and liabilities
Equity
Share capital 1 1
Share premium 21 286 21 286
(Accumulated loss)/retained income (350) 608
20 937 21 895
Liabilities
Non-current liabilities
Long-term borrowings 4 43 877 40 875
Deferred tax 6 153 6 888
50 030 47 763
Current liabilities
Current tax payable 568 316
Trade and other payables 10 188 26 515
Current portion of non-current 4 298 266
liabilities
Bank overdraft 7 724 6 928
Provisions 1 506 1 693
Other financial liabilities 5 25 363 25 363
45 647 61 081
Liabilities associated with assets 8 3 492 -
of disposal group
Total liabilities 99 169 108 844
Total equity and liabilities 120 106 130 739
Net asset value per share (cents) 10,35 10,83
Net tangible asset value per share (19,24) (21,74)
(cents)
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Reviewed 31 Aug 2011
Discontinued Continued
R`000 Notes operations operations Total
Revenue 39 176 99 689 138 865
Cost of sales (29 580) (35 933) (65 513)
Gross profit 9 596 63 756 73 352
Other income 8 352 1 067 9 419
Operating expenses (16 466) (51 246) (67 712)
Earnings before 1 482 13 577 15 059
interest, tax,
depreciation and
amortisation
Depreciation (102) (1 999) (2 101)
Amortisation - (5 354) (5 354)
Operating profit 1 380 6 224 7 604
Investment revenue - 168 168
Finance costs 6 - (6 624) (6 624)
Profit/(loss) 1 380 (232) 1 148
before tax
Taxation expense (37) (2 069) (2 106)
Profit/(loss) for 1 343 (2 301) (958)
the year
Other comprehensive - - -
income
Total comprehensive 1 343 (2 301) (958)
profit/(loss)
attributable to
ordinary
shareholders
Profit/(loss) per 7
share
Basic and diluted 0,67 (1,14) (0,47)
basic profit/(loss)
per share (cents)
Audited 31 Aug 2010
Discontinued Continued
R`000 Notes operations operations Total
Revenue 52 242 74 553 126 795
Cost of sales (37 693) (19 740) (57 433)
Gross profit 14 549 54 813 69 362
Other income 49 470 519
Operating expenses (13 492) (48 214) (61 706)
Earnings before 1 106 7 069 8 175
interest, tax,
depreciation and
amortisation
Depreciation (75) (1 625) (1 700)
Amortisation - (5 069) (5 069)
Operating profit 1 031 375 1 406
Investment revenue - 522 522
Finance costs 6 (2) (7 881) (7 883)
Profit/(loss) 1 029 (6 984) (5 955)
before tax
Taxation expense (644) (287) (931)
Profit/(loss) for 385 (7 271) (6 886)
the year
Other comprehensive - - -
income
Total comprehensive 385 (7 271) (6 886)
profit/(loss)
attributable to
ordinary
shareholders
Profit/(loss) per 7
share
Basic and diluted 0,19 (3,60) (3,41)
basic profit/(loss)
per share (cents)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Reviewed Audited
year ended year ended
R`000 31 Aug 2011 31 Aug 2010
Ordinary share capital
Balance at beginning of period 1 1
Issue of shares - -
Balance at end of period 1 1
Share premium
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 608 7 494
Total comprehensive loss for the period (958) (6 886)
Balance at end of period (350) 608
Total shareholders` equity at end of 20 937 21 895
period
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Reviewed Audited
R`000 31 Aug 2011 31 Aug 2010
Cash generated by operations 7 081 9 694
Investment income 168 522
Finance costs (6 624) (7 883)
Taxation paid (3 771) (4 186)
Net cash flow from operating activities (3 146) (1 853)
Net cash flow from investing activities (1 654) (4 833)
Acquisition of property, plant and (1 413) (2 643)
equipment
Acquisition of intangible assets (241) (1 999)
Proceeds on disposal of property, plant - 342
and equipment
Investment in associated company - (533)
Net cash flows from financing activities 3 034 (4 021)
Repayment of long-term borrowings (268) (2 093)
Movement of other financial liabilities 3 302 (1 928)
Total cash movement for the period (1 766) (10 707)
Cash at the beginning of the period (2 460) 8 247
Cash acquired with business acquisition 90 -
Total cash at end of period (4 136) (2 460)
Total cash at end of period
Discontinued operations 529 161
Continued operations (4 665) (2 621)
(4 136) (2 460)
NOTES TO THE STATEMENT OF FINANCIAL POSITION AND CONSOLIDATED
STATEMENT OF COMPREHENSIVE INCOME
Reviewed Audited
R`000 31 Aug 2011 31 Aug 2010
1. Property, plant and equipment
Land and buildings 7 163 7 350
Furniture and fixtures 257 481
Motor vehicles 94 4
Office equipment 161 235
IT equipment 2 134 2 701
9 809 10 771
2. Investment in associate
Shares at cost - *
Loan to associate - 533
- 533
* Less than R1 000.
3. Intangible assets
Computer software 4 695 7 955
Right of use 13 166 14 528
Intellectual property rights - 1 500
Trademark 6 673 7 187
Trade name 1 310 1 473
Customer base 10 982 12 355
Goodwill on acquisition 17 926 17 926
54 752 62 924
4. Long-term borrowings
Secured at amortised cost: Absa Bank 2 130 2 398
Limited
Less: Current portion included in (298) (266)
current liabilities
1 832 2 132
Cumulative redeemable preference 42 045 38 743
shares issued to NEF
43 877 40 875
5. Other financial liabilities
Morpho South Africa (Pty) Limited 25 363 25 363
6. Finance costs
Interest (887) (1 928)
Dividends on preference shares (5 737) (5 953)
(6 624) (7 881)
7. Profit/(loss) per share
Reviewed 31 Aug 2011
Discontinued Continued
R`000 operations operations Total
Calculation of headline
profit/(loss) (R`000)
Total comprehensive loss 1 343 (2 301) (958)
attributable to ordinary
shareholders
Adjusted for (net of tax):
Impairment of goodwill 460 460
Loss on sale of property, 1 - 1
plant and equipment
Headline profit/(loss) 1 344 (1 841) (497)
Headline and diluted 0,67 (0,91) (0,24)
headline profit/(loss) per
share (cents)
Number of shares
- Issued and weighted 202 222 222 202 222 222 202 222 222
Audited 31 Aug 2010
Discontinued Continued
R`000 operations operations Total
Calculation of headline
profit/(loss) (R`000)
Total comprehensive loss 385 (7 271) (6 886)
attributable to ordinary
shareholders
Adjusted for (net of tax):
Impairment of goodwill
Loss on sale of property, plant (3) 26 23
and equipment
Headline profit/(loss) 382 (7 245) (6 863)
Headline and diluted headline 0,19 (3,58) (3,39)
profit/(loss) per share (cents)
Number of shares
- Issued and weighted 202 222 222 202 222 222 202 222 222
Reviewed Audited
R`000 31 Aug 31 Aug 2010
2011
8. Discontinued operations
Ideco Biometric Security Solutions (Pty) Limited
Net cash flows attributable to the discontinued
operation:
net cash flows from operating activities (4 168) 4 707
net cash flows from investing activities 4 536 (4 780)
net cash flows from financing activities - -
Net increase in cash and cash equivalents 368 (73)
Assets of disposal group
Property, plant and equipment 274
Intangible assets 3 058
Deferred tax asset 272
Inventories 3 461
Trade and other receivables 9 338
Cash and cash equivalents 529
Total assets 16 932
Liabilities associated with assets of disposal group
Trade and other payables 3 492
Total liabilities 3 492
SEGMENTAL ANALYSIS
Discontinued
operations
Biometric Adjustments
readers and and
R`000 solutions eliminations Total
Reviewed 31 August 2011
Revenue from external 39 176 - 39 176
customers
Intersegment revenue - - -
Total revenue 39 176 - 39 176
Depreciation and (102) (102)
amortisation
Operating profit/(loss) 1 380 4 604 5 984
Investment income - - -
Finance costs - - -
Profit/(loss) before tax 1 380 4 604 5 984
Taxation (expense)/credit (37) - (37)
Total assets 16 932 - 16 932
Total liabilities (15 715) 12 223 (3 492)
Audited 31 August 2010
Revenue from external 52 242 - 52 242
customers
Intersegment revenue - - -
Total revenue 52 242 - 52 242
Depreciation and (75) - (75)
amortisation
Operating profit/(loss) 1 031 2 077 3 108
Investment income - - -
Finance costs (2) - (2)
Profit/(loss) before tax 1 029 2 077 3 106
Taxation (expense)/credit (644) - (644)
Total assets 27 135 - 27 135
Total liabilities (27 262) 7 444 (19 818)
Continued operations
Biometric Secure
readers and credentialing Biometric
R`000 solutions services projects
Reviewed 31 August 2011
Revenue from external 407 78 710 20 572
customers
Intersegment revenue - 9 300 -
Total revenue 407 88 010 20 572
Depreciation and amortisation - (3 089) (1 091)
Operating profit/(loss) 45 18 261 (3 487)
Investment income - 168 -
Finance costs - (5 754) -
Profit/(loss) before tax 45 12 676 (3 487)
Taxation (expense)/credit (13) (5 383) 974
Total assets 6 543 68 710 9 269
Total liabilities (469) (80 679) (6 429)
Audited 31 August 2010
Revenue from external 302 63 068 11 183
customers
Intersegment revenue - 997 -
Total revenue 302 64 065 11 183
Depreciation and amortisation - (2 691) (935)
Operating profit/(loss) (184) 13 914 (2 181)
Investment income 30 218 123
Finance costs - (6 913) -
Profit/(loss) before tax (156) 7 220 (2 057)
Taxation (expense)/credit 43 (4 124) 528
Total assets 6 506 60 300 7 469
Total liabilities (5) (79 560) (2 117)
Continued
operations
Adjustments
and
R`000 Corporate eliminations Total
Reviewed 31 August 2011
Revenue from external - - 99 689
customers
Intersegment revenue - (9 300) -
Total revenue - (9 300) 99 689
Depreciation and (549) (2 624) (7 353)
amortisation
Operating profit/(loss) (5 641) (7 558) 1 620
Investment income - - 168
Finance costs (870) - (6 624)
Profit/(loss) before (6 512) (7 558) (4 836)
tax
Taxation 1 619 734 (2 069)
(expense)/credit
Total assets 53 836 (35 184) 103 174
Total liabilities (44 934) 36 834 (95 677)
Audited 31 August 2010
Revenue from external - - 74 553
customers
Intersegment revenue - (997) -
Total revenue - (997) 74 553
Depreciation and (444) (2 624) (6 694)
amortisation
Operating profit/(loss) (9 643) (3 608) (1 702)
Investment income 151 - 522
Finance costs (968) - (7 881)
Profit/(loss) before (10 460) (3 608) (9 061)
tax
Taxation 2 532 734 (287)
(expense)/credit
Total assets 49 136 (19 807) 103 604
Total liabilities (35 341) 27 997 (89 026)
COMMENTARY
INTRODUCTION
Set out above are the reviewed condensed consolidated financial results of
Ideco in respect of the year ended 31 August 2011 with the comparative results
for the year ended 31 August 2010.
BASIS OF PREPARATION
The condensed consolidated financial statements have been prepared in
accordance with the framework concepts and the measurement and recognition
requirements of International Financial Reporting Standards ("IFRS") and the AC
500 standards as issued by the Accounting Practices Board and containing the
information required by IAS 34: Interim Financial Reporting, the South African
Companies Act and the JSE Listings Requirements.
The preparation of the financial statements has been supervised by H B Aucamp
(CA (SA)).
SIGNIFICANT ACCOUNTING POLICIES
The accounting policies adopted in the preparation of the provisional financial
information are consistent with those used to prepare the financial statements
for the year ended 31 August 2010, which are IFRS compliant.
The condensed consolidated 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.
FINANCIAL OVERVIEW
Earnings before interest, tax, depreciation and amortisation ("EBITDA") showed
an improvement of R6,9 million (84,2%) over the previous year. This improvement
can largely be ascribed to the increase in EBITDA of the credentialing services
segment. Both Ideco AFISwitch (Pty) Limited ("AFISwitch") and Managed Integrity
Evaluation (Pty) Limited ("MIE"), the two companies included in this segment,
performed considerably better than in the previous financial year, with
AFISwitch showing an increase of 36,2% and MIE an increase of 23,8% in EBITDA.
The operating results of the biometricreaders and solutions also showed an
improvement of R2,6 million in EBITDA in comparison with the year ended 31
August 2010. The biometric project segment reported a loss in EBITDA of R2,4
million for the year ended 31 August 2011 compared to a loss of R1,2 million
for the previous financial year. Unallocated corporate expenses were in line
with those of the previous year.
As announced to shareholders on 4 November 2011, the sale of Ideco Biometric
Security Solutions (Pty) Limited ("IBSS") has been completed, contingent on the
approval by shareholders to be obtained at the general meeting to be held at
Ideco`s business address on 15 December 2011. In excess of 84% of shareholders
have given irrevocable undertakings to vote in favour of the disposal.
Comprehensive income earned by IBSS is shown separately as discontinued
operations in the condensed consolidated statement of comprehensive income.
The total comprehensive loss attributable to ordinary shareholders of R958 000
was R5,9 million lower than the previous year.
Non-current assets decreased from R84 million as at 31 August 2010 to R75,8
million as at 31 August 2011, mainly as a result of amortisation of intangible
assets of R5,4 million
Inventories and trade and other receivables decreased by R11,3 million and R6
million respectively as at 31 August 2011 compared to 31 August 2010 as a
result of the sale of IBSS, the net current assets of which are shown as a
separate line item on the condensed consolidated statement of financial
position.
Non-current liabilities increased by R3,0 million, due to the provision for the
dividend payable on the "B" preference shares issued to the National
Empowerment Fund, which is only payable on 1 September 2016. The other long-
term borrowing is a bond registered over a property in Centurion, with an
outstanding balance of R2,1 million.
Trade and other payables as at 31 August 2011 are lower than the corresponding
figure for the year ended 31 August 2010, since it excludes the figure for
IBSS, which is shown as a separate line item on the statement of financial
position.
The group`s net cash position decreased by R1,7 million during the year ended
31 August 2011. Cash generated by operations amounted to R7,1 million, which
was absorbed by finance costs, tax paid, investment in property, plant and
equipment and intangible assets. Cash flows from financing activities
contributed R3,0 million to group cash flows, which consisted of loan
repayments of R268 000 and a contribution of R3,3 million from the provision
for the "B" preference share dividend. Details of the above cash flows are
reflected in the above condensed consolidated statement of cash flows.
ACQUISITION OF A SUBSIDIARY (FORMERLY AN ASSOCIATE)
With effect from 12 January 2011, the group acquired the 75% of the issued
share capital of Biometric Medical Solutions (Pty) Limited ("Biomed"), not
already held by Ideco for R300. Biomed was acquired to exploit opportunities
for biometric solutions in the medical sector in southern Africa. The
transaction was accounted for using the purchase method in terms of IFRS 3. The
transaction was effected by way of a share purchase funded from internal cash
resources.
The net assets acquired in the transaction, and goodwill arising, are as
follows:
Business combination 2011
Acquisition of Biomed (formerly an associate)
Fair value of assets acquired, liabilities assumed and
goodwill arising, are as follows:
Trade and other receivables 9
Cash and cash equivalents 90
Trade and other payables (25)
Net assets acquired 74
Loan from Ideco Group Limited (534)
Goodwill arising on acquisition (has been impaired) (460)
Less: proceeds *
Goodwill arising on acquisition (impaired) (460)
If the acquisition had been completed on 1 September 2010, there would have
been no effect on revenue and the loss for the period would have been R52 500.
OPERATIONS
Biometric readers and solutions
Ideco has taken the strategic decision to dispose of its shares in and claims
against IBSS, the major contributor to revenue and profit for this segment, in
order to refocus its resources on providing transaction-based verification
services. The revenue of this segment declined from R52,2 million for the year
ended 31 August 2010 to R39,2 million for the year ended 31 August 2011 due to
the fact that, for strategic reasons, orders from customers were executed
directly by Morpho South Africa (Pty) Limited ("Morpho SA") for the last few
months of the financial year, and Morpho only paid the net margin on such sales
to IBSS. Trading conditions improved when compared to the previous year ended
31 August 2010, as evidenced by the R2,6 million increase in EBITDA.
Secure credentialing services
This segment provides fingerprint-based criminal record checks in terms of a
long-term agreement with the South African Police Service ("SAPS") as well as
background screening services for employers on existing and prospective
employees. The activities of this segment are conducted in two companies,
namely, AFISwitch, which offers criminal record checks, and MIE which offers
background screening services.
MIE`s revenue for the year ended 31 August 2011 was 34% higher than the revenue
for the year ended 31 August 2010, while EBITDA increased by R3 million
(23,8%). EBITDA increased at a lower rate than revenue as a result of revenue
for the year ended 31 August 2011 including a much higher volume of biometric
readers, which are sold at a lower margin than background screening services,
as compared to the previous year. MIE deployed more than one thousand two
hundred biometric readers with its customers during the last quarter of the
financial year to perform fingerprint-based criminal record checks.
The revenue of AFISwitch for the year ended 31 August 2011 increased by 42,8%
compared to the year ended 31 August 2010, while EBITDA was 36,2% higher than
in the previous financial year. With effect from 1 July 2011, SAPS terminated
criminal record checks based on names and identity numbers and now only
performs criminal record checks based on fingerprints. This had a positive
effect on the number of searches performed through the AFISwitch service.
Biometric projects
Revenue generated by this segment increased by 84,0% compared to the revenue
for the year ended 31 August 2010. The main reason for this increase is the
fact that the three-year contract with the Bombela Operating Company for the
supply of the Gautrain smartcards was included for the full financial year for
the first time. The segment`s gross profit percentage decreased from 36% to 19%
due to the low margin on the smartcards and combined with increased expenses,
this resulted in an increase of R1,3 million in the operating loss of the
segment.
PROSPECTS
Biometric readers and solutions
The major company in this segment, IBSS, has been disposed of as disclosed
above. The group will therefore no longer operate in this segment.
Secure credentialing services
The criminal record checking service conducted by AFISwitch continued to show
growth during the year ended 31 August 2011. As mentioned in the report on
operations included herein, a large increase in search volumes has been
experienced since 1 July 2011 when SAPS terminated criminal record checks based
on names and identity numbers only. This change has resulted in a higher
capacity utilisation of the SAPS automated fingerprint identification system
("AFIS") with about 85% of capacity being utilised as at 31 August 2011.
The implementation of the service to the Department of Transport for
Professional Drivers Permits has been completed. As at 31 August 2011 only 70%
of applicants make use of the AFISwitch service, and management is working hard
to increase this figure.
It is expected that MIE will continue to contribute significantly to group
profits, although a reduction in its gross profit percentage is expected as a
result of replacing name and identity number based criminal record checks with
fingerprint-based criminal record checks where MIE earns a much lower margin.
Biometric projects
In addition to the Namibian drivers licence project and the Bombela Operating
Company contract for the supply of the Gautrain smartcards, Ideco has been
awarded two contracts for biometric solutions in medical applications. Ideco
has also been awarded a contract for the supply of biometric readers to a
financial institution for the identification of its clients.
GOING CONCERN
The directors have considered the group cash flow projections and budgets for
the next two years and in light of contracts concluded and an improvement in
the business sectors where the group operates, 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 2011. It should be noted that the after tax loss of
R958 000 for the year includes non-cash flow items totaling an amount of R5,3
million, consisting of depreciation, amortisation and 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.
DISCONTINUED OPERATIONS
It was announced on SENS on 22 September 2011 that Ideco has signed a sale of
shares and claims agreement, dated 21 September 2011, in terms of which the
purchaser will acquire all the shares in and claims against IBSS from Ideco in
one indivisible transaction for an amount of R20,2 million, payable in cash.
The purchase price is payable over a period of 19 months from January 2012 to
July 2013.
The sale of IBSS has been accounted for as a discontinued operation in terms of
IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations. Refer to
note 8 for details of the disposal.
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
Other than the sale of IBSS referred to under the paragraph on discontinued
operations, 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
As reported with the announcement of Ideco`s interim results for the six months
ended 28 February 2011, the company is involved in a dispute with Morpho SA
regarding the repayment terms of the "other financial liability" of R25,4
million reflected in Ideco`s condensed consolidated statement of financial
position at 31 August 2011. This matter is currently before the International
Chamber of Commerce International Court of Arbitration for consideration. Ideco
submitted its answer on Morpho SA`s claim on 5 October 2011 to this court.
Morpho SA may file a reply to Ideco`s answer on or before 12 December 2011.
As part of Ideco`s answer to Morpho`s claim, a counter-claim of R32 million has
been instituted against Morpho for Ideco`s share of a joint biometric project
completed recently.
Pending the outcome of the arbitration, there is a contingent liability of R2,2
million (31 August 2010 - R Nil) against Ideco in respect of additional
interest.
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.
CHANGES TO THE BOARD
Mr Rainer Troester resigned as director of the Company with effect from 28
October 2011 and Mr Johan Vorster was appointed as a non-executive director
with effect from 28 October 2011. There have been no further changes to the
board of directors.
By order of the board
Vhonani Mufamadi H B Aucamp
CEO Financial Director
29 November 2011
CORPORATE INFORMATION
Executive directors:
V Mufamadi (CEO); H B Aucamp (Financial Director)
Non-executive directors:
A X Sisulu-Dunstan; M F Kekana; J A Vorster
Registration number:
2001/023463/06
Registered address:
13 Wellington Road, Parktown, Johannesburg, 2193
Postal address:
P O Box 130353, Bryanston, 2021
Company secretary:
H B Aucamp
Telephone (011) 745 5600
Facsimile (011) 745 5615
Transfer secretaries:
Computershare Investor Services (Pty) Limited
Legal advisors:
DLA Cliffe Dekker Hofmeyr Inc
Designated advisor:
Questco Sponsors (Pty) Limited
www.ideco.co.za
Date: 29/11/2011 16:01:09 Produced by the JSE SENS Department.
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