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MMG
MMG
MMG - MICROmega - Audited Financial Statements For The Year Ended 31 December
2011
MICROmega Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1998/003821/06)
Share code MMG ISIN ZAE000034435
("MICROmega" or "the Group")
AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011
Increase In Revenue 14%
Increase In Headline Earnings Per Share 27%
Increase In Net Asset Value Per Share 5%
Increase In Headline Earnings Per Share From Continuing Operations 26%
SUMMARISED GROUP STATEMENT OF COMPREHENSIVE INCOME
Audited Audited
year year
ended ended
31 December 31 December
2011 2010
R(`000) R(`000)
Revenue 775 483 682 314
Revenue from continuing operations 690 985 547 781
Revenue from discontinued operations 84 498 134 533
Cost of sales (520 318) (451 437)
Gross profit 255 165 230 877
Gross profit from continuing operations 241 295 211 198
Gross (loss) profit from discontinued operations 13 870 19 679
Other income 7 940 4 005
Distribution expenses (6 429) (6 068)
Administration expenses (246 279) (217 052)
Results from operations 10 397 14 794
Results from continuing operations 49 516 36 868
Results from discontinued operations (39 119) (22 074)
Finance income 5 731 6 703
Finance cost (7 076) (5 997)
Net finance cost (1 345) 706
Share of loss of equity accounted associates (628) (724)
Profit before taxation 8 424 11 744
Profit before taxation from continuing operations 47 823 35 760
Loss before taxation from discontinued
operations (39 399) (24 016)
Taxation expense 3 413 (3 936)
Profit for the year 11 837 7 808
Profit from continuing operations 40 975 25 316
Loss from discontinued operations (29 138) (17 508)
Other comprehensive income:
Foreign currency translation differences (4) 12
Revaluation of property 8 214 16 099
Realisation of revaluation reserve 90 (49)
Income tax on other comprehensive income (1 299) (4 507)
Other comprehensive income for the year 7 001 11 555
Total comprehensive income for the year 18 838 19 363
Profit attributable to:
Owners of the company 7 386 5 673
Non-controlling interests 4 451 2 135
Profit for the year 11 837 7 808
Total comprehensive income attributable to:
Owners of the company 10 527 11 432
Non-controlling interests 8 311 7 931
Total comprehensive income for the year 18 838 19 363
Reconciliation of headline earnings:
Profit attributable to ordinary shareholders 7 386 5 673
Profit on disposal of property,
plant and equipment 872 (25)
Profit on disposal of intangible assets (1 073) -
Impairment of intangible assets 15 291 7 758
Impairment of assets classified as held for sale 1 251 2 520
Profit on disposal of investments in subsidiaries (6 361) -
Impairment of other investments 2 679 -
Headline earnings 20 045 15 926
Earnings per share
Headline earnings per share (cents) 20.94 16.46
Basic earnings per share (cents) 7.72 5.86
Diluted earnings per share (cents) 7.64 5.83
Continuing operations
Basic earnings per share (cents) 38.15 13.85
Diluted earnings per share (cents) 37.78 13.78
Weighted average number of shares (000`s) 96 783 96 783
Diluted weighted average number of shares (000`s) 96 674 97 266
Total number of shares in issue (000`s) 94 294 96 462
SUMMARISED STATEMENT OF FINANCIAL POSITION
Audited Audited
as at as at
31 December 31 December
2011 2010
R(`000) R(`000)
ASSETS
Non-current assets 275 202 262 828
Property, plant and equipment 147 033 141 332
Intangible assets 70 318 62 902
Investments in associates 2 038 2 476
Other investments 1 573 6 695
Loans receivable 23 606 24 677
Deferred tax assets 30 634 24 746
Current assets 244 156 242 036
Inventories 43 793 51 631
Retirement benefit surplus 21 381 26 844
Trade and other receivables 134 467 113 330
Current portion of loans receivable 13 539 3 539
Cash and cash equivalents 23 742 20 963
Income tax receivable 642 1 043
Non-current assets classified as held for sale 6 592 24 686
TOTAL ASSETS 519 358 504 864
EQUITY AND LIABILITIES
EQUITY
Share capital and share premium 187 022 190 797
Non-distributable reserves 16 653 14 410
Retained earnings 85 911 78 280
Total equity attributable to owners of
the company 289 586 283 487
Non-controlling interests 24 303 16 189
Total equity 313 889 299 676
LIABILITIES
Non-current liabilities 76 480 69 877
Borrowings 65 192 56 576
Deferred tax liabilities 11 288 13 301
Current liabilities 128 989 135 311
Bank overdraft 9 065 11 844
Current portion of borrowings 14 418 31 886
Trade and other payables 99 066 82 286
Current portion of deferred vendor payments 534 789
Provisions 5 906 8 506
Total liabilities 205 469 205 188
TOTAL EQUITY AND LIABILITIES 519 469 504 864
Net asset value per share (cents) 307.11 293.88
Net tangible asset value per share (cents) 232.54 228.68
SUMMARISED GROUP STATEMENT OF CASH FLOWS
Audited Audited
year year
ended ended
31 December 31 December
2011 2010
R(`000) R(`000)
Cash generated by operating activities 45 848 35 767
Movement in working capital (14 559) 446
Finance income 5 731 6 703
Finance costs (7 076) (5 997)
Taxation paid (13 759) (14 817)
Net cash inflows from operating activities 16 185 22 102
Cash outflow from investing activities
Expenditure to maintain operating capacity
Property, plant and equipment acquired (17 485) (68 820)
Intangible assets acquired - (101)
Proceeds on disposals of property, plant and equipment 5 364 1 528
Proceeds on disposals of intangible assets 1 247 -
Proceeds on disposals of non-current assets held 16 356 -
For sale
Expenditure for expansion
Acquisition of subsidiaries (2 957) (7 812)
Disposal of subsidiaries 16 095 -
Internally generated intangible assets (20 885) (9 368)
Proceeds on disposal of investments 6 524 51
Loans receivable granted (8 003) -
Loans receivable repaid 2 884 1 757
Net cash used in investing activities (860) (82 765)
Cash flows from financing activities
Treasury shares repurchased (3 810) (644)
Dividends paid to non-controlling interests (1 298) (780)
Borrowings (repaid)/raised (4 404) 45 537
Deferred vendor payments repaid (255) (337)
Net cash generated by financing activities (9 767) 43 776
Increase / (decrease) in cash and cash equivalents 5 558 (16 887)
Cash and cash equivalents at the beginning of
the year 9 119 26 006
Cash and cash equivalents at the end of the year 14 677 9 119
SUMMARISED GROUP STATEMENT OF CHANGES IN EQUITY
Share Share Revalu- Foreign Deal Share Retained
capital premium ation currency diffe- based earnings
reserve transla- rences payme- / (Accum
tion reserve nt re -ulated
reserve serve loss)
R(`000) R(`000) R(`000) R(`000) R(`000) R(`000) R(`000)
Balance at 1 970 190 470 3 984 21 1 000 3 191 66 959
January 2010
Total comprehens-
ive income for
The year
Profit for the - - - - - - 5 673
year
Other comprehens- - - 5 376 12 - - -
ive income
Foreign currency - - - 12 - - -
translation diff-
erences
Revaluation - - 5 796 - - - -
of property
Realisation of - - (420) - - - 371
Revaluation reserve
Total comprehens- - - 5 376 12 - - 6 044
ive income for
the year
Transactions with (5) (638) - - - 826 5 277
owners recorded
directly in equity
Treasury shares (5) (639) - - - - -
purchased
Share based payme- - 1 - - - 826 -
nt transactions
IFRS 3 Business - - - - - - 5 277
combinations
Dividends paid to - - - - - - -
non-controlling
interests
Total transact- (5) (638) - - - 826 5 277
ions with owners
Balance at 31 965 189 832 9 360 33 1 000 4 017 78 280
December 2010
Balance at 1 965 189 832 9 360 33 1 000 4 017 78 280
January 2011
Total comprehens-
ive income for
The year
Profit for the - - - - - - 7 386
year
Other comprehens- - - 1 739 (4) - - 1 406
ive income
Foreign currency - - - (4) - - -
translation diff-
erences
Revaluation - - 3 055 - - - -
of property
Realisation of - - (1 316) - - - 1 406
Revaluation reserve
Total comprehens- - - 1 739 (4) - - 8 792
ive income for
the year
Contributions by (22) (3 753) - - - 508 -
and distributions
to owners
Treasury shares (22) (3 788) - - - - -
purchased
Share-based - 35 - - - 508 -
payment transact-
IFRS 3 Business - - - - - - -
combinations
Dividends paid by - - - - - - -
subsidiary company
to non-controlling
interests
Changes in owner- - - - - - - (1 161)
ship interests in
subsidiaries
Acquisitions on - - - - - - (1 161)
non-controlling
interests without
a change in control
Total transact- (22) (3 753) - - - 508 (1 161)
ions with owners
Balance at 31
December 2011 943 186 079 11 099 29 1 000 4 525 85 911
SUMMARISED GROUP STATEMENT OF CHANGES IN EQUITY CONTINUED
Total Non-con- Total
trolling Equity
interests
R(`000) R(`000) R(`000)
Balance at 1 266 595 13 455 280 050
January 2010
Total comprehens-
ive income for
The year
Profit for the 5 673 2 135 7 808
year
Other comprehens- 5 759 5 796 11 555
ive income
Foreign currency 12 - 12
translation diff-
erences
Revaluation 5 796 5 796 11 592
of property
Realisation of (49) - (49)
Revaluation reserve
Total comprehens- 11 432 7 931 19 363
ive income for
the year
Transactions with 5 460 (5 197) 263
owners recorded
directly in equity
Treasury shares (644) - (644)
purchase
Share based payme- 827 - 827
nt transactions
IFRS 3 Business 5 277 (4 417) 860
combinations
Dividends paid to - (780) (780)
non-controlling
interests
Total transact- 5 460 (5 197) 263
ions with owners
Balance at 31 283 487 16 189 299 676
December 2010
Balance at 1 283 487 16 189 299 676
January 2011
Total comprehens-
ive income for
The year
Profit for the 7 386 4 451 11 837
year
Other comprehens- 3 141 3 860 7 001
ive income
Foreign currency (4) - (4)
translation diff-
erences
Revaluation 3 055 3 860 6 915
of property
Realisation of 90 - 90
revaluation reserve
Total comprehens- 10 527 8 311 18 838
ive income for
the year
Contributions by (3 267) (1 298) (4 565)
and distributions
to owners
Treasury shares (3 810) - (3 810)
purchased
Share-based 543 - 543
payment transact-
Dividends paid by - (1 298) (1 298)
subsidiary company
to non-controlling
interests
Changes in owner- (1 161) 1 101 (60) ship interests in
subsidiaries
Acquisitions on (1 161) 1 101 (60)
non-controlling
interests without
a change in control
Total transact- (4 428) (197) (4 625)
ions with owners
Balance at 31 289 586 24 303 313 889
December 2011
NOTES TO THE GROUP FINANCIAL INFORMATION
1. Basis of preparation
These audited condensed consolidated financial statements have been prepared
under the supervision of DJ Case (CA) SA, in
accordance with the framework concepts and the recognition and measurement
criteria of International Financial Reporting Standards (IFRS), its
interpretations adopted by the International Accounting Standards Board
(IASB), the presentation and the disclosure requirements of IAS 34 Interim
Financial Reporting, the AC 500 standards as issued by the Accounting
Practices Board, the Listing Requirements of the JSE Limited and the
requirements of the South African Companies Act 71 of 2008, as amended.
The condensed consolidated financial results are prepared in accordance
with the going concern principle under the historical cost basis as
modified by the fair value accounting of certain assets and liabilities
where required or permitted by IFRS.
All financial information presented in South African Rand has been rounded
to the nearest thousand.
2. Comparative Information
The comparative figures have been restated in the statement of comprehensive
income as the group previously classified profits and losses on conversion of
foreign exchange transactions in finance income and finance costs. Due to the
confusion that this treatment caused around group cost of capital, the profit or
loss on foreign exchange transactions has been classified as part of other
income.
3.Discontinued Operations
The group continues to classify Kolbenco (Proprietary) Limited as discontinued
operations. There are ongoing discussions and negotiations around the remaining
assets, including the plant & machinery and inventory.
During September 2011 the group disposed of its entire interest in BTM
Manufacturing (Proprietary) Limited, a manufacturer of towbars and other bolt on
accessories for the automotive market. The business and assets of ARDA
Professional Machining Services (Proprietary) Limited were disposed of as part
of the transaction.
During October 2011 the group disposed of 90% of its interest in Lubrication
Equipment (Proprietary) Limited, an oil piping solutions company.
During November 2011 the group disposed of the business and assets of Automobile
Radio Dealers Association 1989 (Proprietary) Limited, a company specialising in
auto electrical accessories distribution.
4. Segment information
SEGMENT REVIEW
Audited Audited
year year
ended ended
31 December 31 December
2011 2010
R(`000) R(`000)
NOSA
External sales 155 756 123 507
MECS Africa
External sales 255 929 197 161
Deltec Power Distributors
External sales 129 538 92 889
Sebata Municipal Solutions
External sales 100 440 102 693
Turrito
External sales 9 746 652
MICROmega Securities
External sales 40 423 39 029
Automotive Disposal
External sales 84 498 134 533
Holdings Company and consolidation eliminations
External sale 4 747 1 651
Internal sales (5 594) (9 801)
Total revenue 775 483 682 314
SEGMENT PROFIT / (LOSS)
Audited Audited
year year
ended ended
31 December 31 December
2010 2009
R(`000) R(`000)
NOSA 22 763 16 666
MECS Africa 7 056 1 888
Deltec Power Distributors 8 652 6 045
Sebata Municipal Solutions 8 707 5 810
Turrito (1 474) (1 091)
MICROmega Securities 10 015 8 098
Automotive Disposal (29 637) (15 924)
Holdings Company and consolidation eliminations (18 696) (15 819)
Total profit 7 386 5 673
SEGMENT ASSETS
Audited Audited
as at as at
31 December 31 December
2011 2010
R(`000) R(`000)
NOSA 72 321 61 247
MECS Africa 62 596 41 055
Deltec Power Distributors 61 230 44 443
Sebata Municipal Solutions 73 496 125 393
Turrito 6 920 3 485
MICROmega Securities 60 383 52 902
Automotive Disposal 62 433 141 384
Holdings Company and consolidation eliminations 119 979 34 955
Total assets 519 358 504 864
5. Commentary
Commentary
Results
Headline earnings per share increased by 27% to 21 cents for the year under
review. Net asset value per share increased by 4.5% to 307 cents.
The results for the year reflect the impact cost of the restructuring of the
group that was announced last year. This entailed the disposal and closure of
non-profit contributing businesses, and a refocus of our investment into
information technology and our traditional support service operations.
Discontinued operations reduced headline earnings by R17 million (18 cents per
share). This was the financial cost of losses incurred by these businesses, as
well as the cost of closure or disposal. We can confirm that as at 31 December
2011 the full impact cost of the disposal and closure of these companies has
been fully accounted for and that we are not carrying any further direct or
indirect operating costs or cost of closure into the 2012 financial year.
Continuing operations
Headline earnings per share from continuing operations increased by 26% to 39
cents for the year under review.
In brief:
NOSA
NOSA provides occupational health, safety and environmental risk management
services and is the exclusive provider of both the NOSA Five Star Grading System
and SAMTRAC.
NOSA enjoyed a 37% growth in earnings year on year. This growth was driven by
the increasing demand for occupational health, safety and environmental services
from both general industry and the mining sector.
MECS Africa
MECS Africa is a service orientated business that alleviates the considerable
burden of manpower management by offering an integrated human resource solution
to a diverse client base.
MECS Africa`s year on year growth of 274% exceeded expectation. This growth was
attributed to the diversification of its product offering and expansion into
Africa.
Sebata Municipal Solutions
Sebata Municipal Solutions provides integrated technology solutions, enterprise
management systems and multi-disciplinary professional services to
municipalities, public entities, Provincial Government and the private sector
Sebata Municipal Solutions enjoyed a 50% growth in earnings year on year. Whilst
we were pleased with the contribution and growth from the private sector, we
experienced delays in the implementation of systems to a number of our public
sector customers.
MICROmega Securities
MICROmega Securities is an inter-dealer broker (IDB), providing a specialist
intermediary broking service to commercial banks, investment banks, stock-
brokers as well as reputable trading entities in the wholesale financial
markets.
MICROmega Securities` earnings are directly related to market volatility and
liquidity. The growth in earnings was eroded by our operating investment in an
equity derivatives brokering service that did not meet our expectations and was
subsequently closed in November 2011, as well as our ongoing investment into the
establishment of inter-dealer brokering services into Africa.
Deltec Power Distributors
Deltec Power Distributors is a leading distributor of a wide variety of high
quality imported maintenance-free batteries.
Although Deltec continues to contribute to earnings growth, as stated at the
beginning of last year, we intend fully divesting from our automotive
businesses. This will release capital and give shareholders a greater return
from our core businesses.
Turrito Networks
Turrito Networks is a converged communication provider delivering MPLS networks,
hosting facilities, internet and cloud computing services to large corporates
and the SMME market.
Turrito is a new business that made no contribution to earnings in 2011. The
cloud computing products developed over the past three years are housed within
this business and have only been taken to market in 2012.
Prospects
We are confident that the group is well positioned to deliver strong earnings
growth in 2012.
NOSA completed its investment in infrastructure in South Africa in 2011,
enabling the business to deliver services from 25 regional offices that will
underpin revenue and earnings growth going forward. Acceptance by client company
directors that they are accountable for the safety of their employees and the
enforcement of relevant legislation all result in a demand driven environment
for the business. The decision to franchise the NOSA product offering globally
in 2012 will allow multinationals, requesting our products outside Africa,
access to them through well-capitalised and established local operators.
Our investment in cloud computing solutions over the past three years will
contribute to earnings in 2012. We are leaders in the field of application
delivery through the cloud onto multiple devices. Our products are unique, and
since the launch of our first product this year we have secured twenty public
sector clients and a number of large multinationals. We are currently performing
live proof of concept trials at a number of institutions and corporates in South
Africa. We remain uncertain as to the magnitude of the demand we will receive
for our cloud products however we are confident, based on the current reception,
that this business will provide strong earnings growth for the group in future
periods.
On the whole we are satisfied that the restructuring undertaken in 2011 has
resulted in a portfolio of good businesses with solid market traction. Our
acquisitions and development of new products and services has, in past years,
primarily been funded out of retained earnings. Our realigned portfolio will be
more cash generative and thereby place the group in a position to commence the
payment of dividends.
By order of the Board
5 March 2012
Directors: DC King (Chairman); IG Morris (Chief Executive Officer); DSE Carlisle
(Managing Director); DJ Case (Financial Director); PV Henwood Lead Independent
Non-Executive Director); RC Lewin (Non-Executive Director)
Company Secretary: T De Mendonca
Auditors: Nexia SAB & T
Transfer Secretaries: Computershare Investor Services (Proprietary) Limited
Sponsor: Java Capital
Attorneys: Eversheds
Date: 05/03/2012 08:45:04 Produced by the JSE SENS Department.
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