| Fri 30 Mar 2001, 0:00 | | Specialised Outsourcing Ltd - Audited Results Year |
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Specialised Outsourcing Limited
("the Company")
Registration number 1995/001603/06
Audited Results for the Year Ended 31 December 2000
Restated Restated
Group & Company Company Group
2000 1999 1999
R 000's R 000's R 000's
Income Statement
Turnover
Continuing Operations 64,693 59,873 59,873
Discontinued Operations 28,301
Operating Profit 39,015 53,492 64,828
Provision against Debtor (30,151)
Profit on realisation
of Investments 20,113 84,317 74,176
Investment Income 13,481 19,941 14,844
Profit Before Taxation 42,458 157,750 153,848
S A Normal Taxation 11,219 16,784 20,800
Deferred Taxation (6,784)
Secondary Tax on Companies 8,670 750 750
Profit After Taxation 29,353 140,216 132,298
Weighted Average
number of Shares 52,948,582 51,113,611 51,113,611
Earnings per Share (
EPS) (cents) 55.44 274.32 258.83
Earnings adjusted for
Profit on realisation
of Investments (20,113) (84,317) (74,176)
Profit on Sale of
Non-Current Assets (24) (34) (34)
Headline Earnings 9,216 55,865 58,088
Headline EPS (cents) 17.41 109.29 113.64
Headline Earnings
Adjusted for
Secondary Tax on companies 8,670 750 750
Headline Earnings
Excluding STC 17,886 56,615 58,838
Headline EPS (cents)
- Excluding STC 33.78 110.76 115.11
Group & Company Company Group
Changes in Equity 2000 1999 1999
R 000's R 000's R 000's
Stated Capital
Opening Balance as
previously reported 36,733 101,538 101,538
Share Placing 57,000 57,000
Share Options exercised 146 1,860 1,860
Capitalisation Award 22,477 11,202 11,202
Goodwill written off (141,801) (141,801)
Excessive Goodwill
written off
- Revaluation of CMMS 5,420 5,420
Excessive Goodwill
written off
- SAICIH acquisition reserves 1,885 1,885
Share Issue expenses (414) (371) (371)
Closing Balance 58,942 36,733 36,733
Accumulated Profit
Opening Balance as
previously reported 156,618 14,216 27,554
Prior Year Adjustments 19,333 13,913
Revenue Recognition
- Net of Taxation 21,654 21,654
Refunds due to Forex
Clients in 1998 (204) (204)
Underdeduction of PAYE (232) (232)
Consolidation of CMMS (5,420)
SAICIH effective date
adjustment - Net of Taxation (1,885) (1,885)
Net Profit for the Year 29,353 140,216 132,298
Dividends (95,718) (17,147) (17,147)
Closing Balance 90,253 156,618 156,618
Group & Company Group & Company
Balance Sheet 2000 1999
R 000's R 000's
Assets
Non Current Assets 9,342 54,910
Property, Plant & Equipment 2,549 2,824
Investments 9 52,086
Deferred Taxation 6,784
Current Assets 152,355 166,719
Accounts Receivable 14,642 28,181
Taxation Receivable 2,284
Cash & Cash Equivalents 135,429 138,538
Total Assets 161,697 221,629
Equity & Liabilities
Capital & Reserves 149,195 193,351
Stated Capital 58,942 36,733
Distributable Reserves 90,253 156,618
Current Liabilities 12,502 28,278
Accounts Payable 11,243 12,496
Taxation Owed 15,782
Shareholders for Dividend 1,259
Total Capital & Liabilities 161,697 221,629
Weighted Average number
of Shares 52,948,582 51,113,611
NAV per Share 281.77 378.28
Group & Company Company Group
Cash Flow 2000 1999 1999
R 000's R 000's R 000's
Cash Generated from
Operating Activities 22,642 73,901 75,640
Interest Received 7,172 9,373 10,923
Interest Paid (10) (10)
Dividends Received 6,309 10,578 3,931
Dividends Paid (71,982) (17,146) (17,146)
Taxation Paid (37,955) (27,948) (31,966)
Net Cash Generated from
Operating Activities (73,814) 48,748 41,372
Cash Flows from
Investing Activities
Expenditure to Maintain
operating Capacity
Property, Plant and
Equipment acquired (1,314) (1,042) (1,243)
Proceeds on Disposal
of non-current Assets 98 58 58
Proceeds on Disposal
of Investments 72,198
Proceeds on Disposal
of Subsidiary 85,038 85,038
Expenditure for Expansion
Investment in Subsidiaries (1,742) (11,299)
Investments (9) (51,450) (51,610)
Net Cash Flows from
Investing Activities 70,973 30,862 20,944
Cash Flows from Financing Activities
Capital raised net of
Share issue expenses (268) 69,691 69,691
Loans Repaid (45,742) (43,703)
Net Cash Flows from
Financing Activities (268) 23,949 25,988
(Decrease)/Increase in Cash
and Cash Equivalents (3,109) 103,559 88,304
Cash and Cash Equivalents
at the beginning of the Year 138,538 34,979 50,234
Cash and Cash Equivalents
at the end of the Year 135,429 138,538 138,538
Prior Year Adjustment Company Company
1999 1998
R000's R000's
Effect on Turnover
Group Earnings - CMMS (5,420)
Group Earnings - SAICIH (2,900)
Performance Fees Revenue (33,314) 33,314
Provision for Commercial Losses (7,200) 7,200
(40,514) 32,194
Effect on Operating Profit
Group Earnings - CMMS (5,420)
Group Earnings - SAICIH (2,900)
Performance Fees Revenue (33,314) 33,314
Under Deduction of PAYE (286) (232)
Refund to Foreign Exchange Clients (915) (313)
Profit on Disposal of Non-Current Assets (431)
(34,946) 24,449
Tax Effect 10,268 (10,535)
(24,678) 13,914
Audit Opinion
The Company's auditors, Ernst & Young, have issued an unqualified audit opinion
in respect of the reporting period.
1 Significant notes to the Financial Statements
1.1 Contingent Liability
A contingent liability may exist in respect of potential claims arising out of
the investigation by a major Client into abnormalities that may have existed in
the adjudication and approval of the treasury outsourcing contract that was
awarded to the Company in 1997. It is the belief of the Company that it has
delivered significant savings and benefits to this Client in carrying out the
mandate issued under the contract. The total extent of performance fees raised
from this contract since the date of inception, for which payment has been
received, is R 82,4m. This Client repudiated the said contract on 14 November
2000, and although the Board stands behind the services and benefits delivered
to this Client, it has raised a provision against this Debtor for all
outstanding invoices and accruals of income not yet billed or paid. All
invoices prior to June 2000 have been paid and audited by this Client's
external auditors. The Board, supported by Legal Counsel, does not consider it
appropriate to raise any further provision for invoices paid by this Client in
the past. The Provision against Debtors in the Income Statement of R 30,151m
relates to work performed on this Client's contract for which payment had not
been received to date. No amounts have been accrued or invoiced since the
repudiation date for work performed valued at R 4,257m.
1.2 Stated Capital
Stated Capital has been credited in 1999 with amounts of R 5,42m and R 1,885m
in respect of excessive Goodwill written off against Stated Capital relating to
the revaluation of CMMS (Capital Market Management Services (Pty) Ltd) and
consolidation adjustments for SAICIH (SA International Capital Investment and
Holdings (Pty) Ltd) in 1999. These credits to Stated Capital are subject to
approval by shareholders at the next Annual General Meeting of the Company.
2. Comments on Accounting Policies
2.1 Revenue Recognition
The revenue recognition accounting policy pertaining to performance fees allows
income to be brought to account when it can be demonstrated at the year-end
that the revenue can be reliably measured against agreed benchmarks, that
economic benefits will flow to the enterprise, that the cost to complete can be
measured and that the stage of completion can be identified. If there is any
uncertainty regarding this, the policy of the Company is to hold open the books
of account for a reasonable period, until certainty can be achieved.
2.2 Prior year adjustments
As has been previously reported, the Board of Directors deemed it necessary to
review the application of accounting policies in prior years. The Board, upon
reviewing the results of an investigation conducted by Ernst & Young,
determined that certain matters relating to Group Earnings, Performance Fee
recognition and Provision for Commercial Losses, be treated as Fundamental
Errors. The adjustments to the respective financial statements were advised to
shareholders on 24 November 2000 by way of SENS release. At this time certain
other matters were identified, primarily relating to "housekeeping", and they
have now been treated in a similar fashion. They are:
1. Under Deduction of PAYE
It was generally the practice of the business to remunerate employees on a
reimbursive basis and as a result there was an under deduction of PAYE in the
fiscal years ending February 1998, 1999 and 2000. The Company has paid the
amounts owing to the SARS and has corrected the financial statements in the
appropriate periods.
2. Refund to Foreign Exchange Clients
In undertaking certain foreign exchange transactions on behalf of certain
clients, they may not have been credited with the full benefit due to them in
respect of the mandates they had given. The Board decided to refund these
clients these amounts upon finalisation of the review. These Clients have been
notified and payments relating to the undisclosed benefits have been made. The
financial statements for the affected periods have been adjusted.
3. Profit on Disposal of Non-Current Assets
Legal and advisory costs primarily incurred in 1999 in relation to the sale of
SAICIH were not accrued and are now charged against the profit on the sale of
non-current assets disclosed in 1999.
2.3 Deferred Tax Asset
A Deferred Taxation Asset has been brought to account on the temporary
difference that has arisen on the provision of R 30,151m raised against a
Debtor at 31 December 2000. The provision has been included in expenses for
accounting purposes and a deduction on 25 % of the provision claimed against
taxable income. The Company believes that it is probable that this asset will
be realised in the near future.
2.4 Subsequent Events
The Company has early adopted the Accounting Statement on Subsequent Events
(AC107) which has resulted in the dividend declared in the 1999 Annual
Financial Statements being appropriated in 2000 against Accumulated Profits.
The consequential Secondary Tax on Companies (STC) has therefore also been
included in the 2000 results. The calculation of headline earnings per share,
shown as part of the Income Statement, has been fully detailed to reflect this
circumstance.
2.5 Discontinued Operations
Discontinued Operations comprise the business of money broking undertaken by a
previous subsidiary company, SAICIH, which was disposed of with effect from 1
December 1999.
3. Dividend
The Board has declared a dividend of 20 cents per ordinary share (1999 185
cents) payable to all shareholders registered as such at the close of business
on 20 April 2001. Payment will be made on or before 4 May 2001.
4. Commentary on results
The year under review has been a challenging one. The results represent the
cathartic process that needed to take place to enable the Company to start
focusing on the future instead of the past. The year has been highlighted by
intense scrutiny, firstly relating to the Ernst & Young accounting review, and
more recently the repudiation by a major Client of the treasury contract
between them and the Company. The financial effects of both these matters have
been fully accounted for and disclosed in the results. In addition, these
matters have taken a significant amount of management's time and effort. It is
satisfying to note that even under these circumstances the turnover from
continuing operations has increased over 1999 by 8.05% and performance revenue
has increased by 10.78%. The Company remains financially sound with cash on
hand at the year-end of R 135,428m. This financial strength is pleasing
considering the quantum of the dividend paid during the year (R 72,0 m), and
the proceeds on the liquidation of remaining investments (R 72,2 m). The
Company is now free of non-core assets and is in a position to take advantage
of any market prospects that may present themselves. Dealing with the matters
referred to above has had the effect of increasing the overhead of the Company
during 2000, but recurring overheads amounted to R 21,2m for the year, or R
1.76m per month, which was in line with budget.
Accompanying the results at 30 September 2000, the Company posted a profit
warning that the results for the full year were unlikely to achieve those
previously forecast. This profit warning was due to the disputed matter
referred to above, and also a market condition that existed relating to the run
up to the Municipal elections on 5 December 2000, and the delay by the Public
Sector to take decisions that may have lead to deal closure. This market
condition turned out to be real, and the result was that transactions that were
planned to close did not close by year-end. These transactions have now
continued into the new financial year and represent current work-in-progress
which has not been recognised for accounting purposes. This market condition
also resulted in the decline in Operating profit as reported at 30 September
2000 when compared to that at 31 December 2000, when applying the accounting
policy relating to Revenue Recognition at year end.
The clarification and finalisation of the disputed matter remains a priority.
The effect of the provision of R 30.151m in respect of this matter, translates
to 39,86 cents per share in earnings and would have increased the EPS to 95.30
cents per share. The Company, together with its Legal Counsel, is satisfied
that no material loss to the Company will occur as a consequence of this
matter. The attention of the reader, is however, drawn to the contingent
liability note above.
5. Prospects
It is pleasing to note that throughout the challenges that this year brought,
the business model weathered the storm. With the run-up to the Municipal
elections during the latter part of year 2000, marketing efforts also suffered
an interruption, but these efforts are again well underway. Our existing
clients have received significant benefits over the year, and but for the
Municipal Elections delaying the implementation of certain mandates, the
Company's results could have been significantly better. The Company is
confident that these will come to fruition in the year ahead. The business
model has been expanded to incorporate physical risk management and this
activity will begin to contribute to earnings in the year 2001.
In the past, the Company has reported to shareholders quarterly. The Board has
decided to discontinue this practice for two reasons. Firstly, the March and
September periods do not coincide with the contractual billing periods of major
clients, and secondly, the determination of the valuation of work-in-progress
at these dates is very time consuming and judgmental. Accordingly, the Company
will now only report its interim and final results as is required by the JSE
Securities Exchange.
The Company has recently undertaken a comprehensive strategic review of its
operations and plans to broaden the services it offers through both the
repackaging of existing products and the creation of new business lines.
Opportunities that compliment the Company's underlying philosophy of offering
intellectual capacity to clients will be sought out and, if viable, implemented
The Company continues to have the loyal support of both management and staff.
By order of the Board of Directors
Randburg
28 March 2001
Notice to Shareholders
Notice is hereby given that an ordinary dividend of 20 cents per share has been
declared payable on or before 4 May 2001 to shareholders registered in the
books of the Company at the close of business on 20 April 2001.
By order of the Board of Directors
R D D Harrison - Company Secretary
Directors: BH Adams (Chair)(ne), DM McLean (CEO), Dr DE Baloyi (ne)(Alt IJ
Pascal (British)), C Buitendag, GT Magomola (ne), Dr WJ Kok (ne), PW Schneider,
C Walker
Address: 2nd Floor, Oak Place, 264 Oak Avenue, Randburg, 2125
Transfer Secretaries: Computershare Services
Email: spec@outsors.co.za
