| Tue 7 Aug 2001, 0:00 | | Financial Insourcing Specialists Limited - Unaudit |
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FINANCIAL STATEMENTS
FINANCIAL INSOURCING SPECIALISTS LIMITED AND ITS SUBSIDIARY
COMPANIES
(Registration number 1998/003821/06)
UNAUDITED INTERIM GROUP FINANCIAL STATEMENTS FOR THE SIX MONTHS TO
JUNE 2001
Increase in headline earnings 83%
Increase in headline earnings per share 62%
ABRIDGED INCOME STATEMENT
Unaudited Unaudited
6 months 6 months
ended ended
30 June 30 June
2001 2000
R '000 R '000
Gross revenue 47,784 22,881
Operating profit/(loss) 18,491 9,296
Net finance income 1,455 1,653
Profit before taxation 19,946 10,949
Taxation (4,556) (2,518)
Headline earnings 15,390 8,431
Write off of associate
company Note 2 (5,142) -
Amortisation
of Goodwill Note 3 (12,777) -
Profit/(loss) attributable
to shareholders (2,529) 8,431
Weighted average number
of ordinary shares ('000) 73,282 64,855
Headline earnings per
share (cents) 21.00 13.00
ABRIDGED BALANCE SHEET
Unaudited Unaudited
6 months 6 months
ended ended
30 June 30 June
2001 2000
R'000 R '000
Assets
Non-current assets
Fixed assets 6,791 5,736
Net goodwill Note 4 48,765 41,337
Deferred tax Note 5 3,685 -
Investments 3,817 5,534
Current assets 45,002 38,992
Accounts receivable 9,896 7,442
Cash and Bank 35,106 31,550
Total assets 108,060 91,599
Equity and liabilities
Shareholders equity 75,648 73,547
Long-term interest
free loan 8,426 -
Current liabilities 23,986 18,052
Accounts payable
and provisions 19,959 12,933
Taxation 4,027 5,119
Total equity and
liabilities 108,060 91,599
Number of ordinary shares
in issue ('000) 76,377 72,000
Net asset value per share 99.05 c 102.15 c
ABRIDGED STATEMENT OF
CHANGES IN EQUITY
Share Share Accumulated Total
Capital Premium loss
Balance at
1 January 2000 241 70,823 (38,145) 32,919
Change in acounting
treatment of
deferred tax Note 5 - - (14,568) (14,568)
Restated balance
at 1 January 2000 241 70,823 (52,713) 18,351
Net profit for the year
- - 11,008 11,008
Increase in share capital
484 49,261 - 49,745
Share issue expenses - (1,154) - (1,154)
Restated balance at 1
January 2001 725 118,930 ( 41,705) 77,950
Net loss for the period
- - (2,529) (2,529)
Scrip dividend 36 14,464 (14,500) -
Increase in share capital 3 250 - 253
Share issue expenses - (26) - (26)
Balance at 30 June 2001 764 133,618 (58,734) 75,648
ABRIDGED CASH FLOW STATEMENT
Unaudited Unaudited
6 months 6 months
ended ended
30 June 30 June
2001 2000
R '000 R '000
Cash generated from
Operations 23,574 10,949
Taxation Paid (5,245) (1,056)
Movement in working capital (8,097) 5,637
Net cash from operating
activities 10,232 15,530
Net cash flows from investing
activities (7,147) (49,679)
Net cash flows from
financing activities 2,738 53,621
Net Increase in cash and
cash equivalents 5,823 19,472
Represented as follows :
Cash and cash equivalents
at beginning of the period 29,283 12,078
Cash and cash equivalents at
end of the period 35,106 31,550
Net Increase in cash and cash
equivalents 5,823 19,472
NOTES TO THE FINANCIAL STATEMENTS
1 Accounting Policies.
Except where otherwise stated, the same accounting policies and
methods of computation used in the annual financial statements at
31 December 2000 have been applied in these interim financial
statements.
2 Write - off of associate company 5,142 -
This represents the write-off of the total value of the remaining
venture capital investments made by the company in 1998 while it
was still a venture capital business.
3 Amortisation of goodwill 12,777 -
Goodwill was previously amortised over 20 years on a straight line
basis. The Board has considered the merits of this and agreed that
it is inappropriate for goodwill to amortised over such an
extended period in an intellectual capital business operating in
the fast changing financial services industry. We have
consequently decided to amortise goodwill on an accelerated basis
to coincide with the lesser of the profit warranty period
associated with a specific acquisition or 5 years. Where there is
no profit warranty goodwill will be amortised over 5 years.
Net goodwill
Goodwill 84,529 80,233
Contingent long term
liability (35,764) (38,896)
48,765 41,337
The company acquired the entire issued capital and contingent
claims of a subsidiary during the previous financial year. Payment
of these claims is dependent upon profit warrenties being met. In
the event that the profit warranties are not met or are partially
met the claims will be reduced proportionately and will
consequently result in a reduction of goodwill. In the event that
the profit warranties are met the payment of the contingent long
term liability will be met out of future profits. The directors
are of the opinion that due to the contingent nature of the long
term liability , this amount should be set-off against goodwill
arising from the acquisition.
5 Deferred tax
In previous years the group did not account for deferred tax
assets. The basis was changed during the 2000 financial year in
order to conform with statements of generally accepted accounting
practice. A portion of the deferred tax asset raised in the group
was attributable to the holding company assessed losses, the
directors are of the opinion that the rate at which they will be
able to utilise this assessed loss does not warrant the deferred
tax asset and have therefore agreed to reverse the deferred tax
asset which is applicable to this entity.
This change in accounting treatment has been shown in the
statement of changes in equity for the periods prior to 2000 and
shown in the income statement by way of a restatement of the
taxation amount for 2000 to the value of R800 417.
5.1 Retained income at beginning of year
The effect of the change referred to in note 5 above on retained
income at the beginning of the year has been calculated as
follows:
Retained profits as
previously reported (26,336) (52,712)
Prior year adjustment
relating to years before 2000 (14,568) -
Restatement of results for
the year ended 31 December 2000 (800) -
(41,704) (52,712)
This has resulted in a decrease in headline earnings per share for
the year ended 31 December 2000 from 28.0 cents to 26.8 cents.
Commentary on Results
These results reflect our commitment to grow earnings at a level
significantly above the average for our sector. All businesses
performed well despite the adverse Umgeni/Outsors publicity.
Market conditions remain strong for the money broking operations.
The ratings business is showing steady growth, both locally and in
the rest of Africa, and is underpinned by the strong annuity
nature of its revenue. The MICROmega asset, liability and revenue
management solutions made a significant contribution and these
businesses are well positioned for the balance of the year.
Individual contributions to headline earnings per share are:
SA Money Brokers 42%
Global Credit Ratings 10%
MICROmega 41%
Investment Income 7%
Strategic Issues
The services provided by the Group can be incorporated within a
single definition- "to act as an independent intermediary between
users of financial product and the providers of financial
product". Public and private sector corporates in South Africa
have, and will continue to have, restricted access to the skills
base necessary to identify and execute appropriate strategies to
meet their treasury and financial risk requirements. We remain
committed to this target market and the significant growth
opportunities that it offers.
During the period we reviewed the manner in which we market
services to our clients. Our original approach was to provide our
service exclusively on a long term insourced basis. We
subsequently incorporated treasury outsourcing as a separate
product offering. The negative publicity surrounding the
outsourcing of treasury activities has rendered it extremely
difficult to secure clients solely on an outsourced or on an
insourced basis. We have decided to discontinue the marketing of
the outsourcing service as we believe that it is no longer
commercially viable in South Africa. However our insourcing model
still has relevance albeit it will in future be marketed on a
divisional basis rather than as our flagship product.
Importantly, we have achieved success during the reporting period
through the provision of treasury services by utilising a "menu"
approach whereby each client can select that part of our service
that meets its short term needs. Additional services can be
introduced at a later stage as and if required. In this way each
client can receive a unique offering without affecting our common
template of service delivery. The future growth in earnings is
therefore not impacted solely by the growth of insourcing clients.
Introducing MICROmega
An example of our new approach is reflected in the growth in
MICROmega clients utilising our working capital management
solutions and in particular our success in the area of revenue
management. Many clients feel that debt raising and liability
management activities should be deferred until they have basic
control over their cash flow cycle. This is a mature approach and
fits in well with our philosophy of getting the basics in place
prior to enhancing the treasury activities. It also provides us
with a natural upgrade strategy for our product range and enhances
the "commercial annuity" nature of our income. MICROmega has
evolved in recognition of the realities of service delivery in our
marketplace and we anticipate continued expansion of this
business. MICROmega clients include Eskom and the cities of
Pretoria, Durban and Cape Town.
Name Change
In recognition of our expanded range of services the Board has
deemed it appropriate to re-brand the Group under the MICROmega
umbrella. Shareholders will therefore in due course be asked to
consider a name change for their company.
Prospects
We do not anticipate a decline in the current levels of
profitability and consequently anticipate that earnings for the
full year will continue at growth rates significantly above our
sector.
Dividend
The company does not pay an interim dividend.
By order of the Board
Directors: J.E. Newbury ( Non- Executive Chairman), D.C. King
(Chief Executive), A.G. Fletcher, I.G Morris, M.M. Ngoasheng, F.R.
Proudfoot.
