| Wed 20 Feb 2002, 0:00 | | Mgx Holdings Interim Results For The Six Months En |
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MGX Holdings Limited
Registration Number: 1983/012697/06
Share Code: MGX
ISI No. ZAE000009262
Interim Results for the six months ended 31 December 2001
Highlights
Revenue up 131%
Operating profits up 91%
Headline earnings up 42%
Headline earnings per share Unchanged
Positive operating cash flows of R62 million
Foreign investment of R170 million in MGX
Introduction
During the six months under review, the MGX business units met the overall
targets for the group. This is indicative of MGX's ability to generate
quality earnings under the most challenging of circumstances, and reflects
the strength and focus of MGX's executive management and staff in achieving
the goals set out for the period.
The businesses of Computer Configurations Holdings Limited (CCH) continued
to be integrated into MGX, and the coherent strategy for the group was
further developed and implemented. This renewal and enlargement of MGX
positions the group for sustainable growth for the future with a
substantially increased critical mass. The results reflect the difficult
trading conditions of the period and the impact of the longer than
anticipated restructuring and rationalisation of CCH's operations.
Trading results
The six months under review include the operations of CCH and EC-Hold
Limited (EC-Hold) as subsidiaries for the full period.
Operating income before goodwill amortisation increased 91% from R47,4
million to R90,7 million, on a 131% increase in revenue from R325,2 million
to R750,7 million. The depreciation of the Rand, the tough trading
environment, the costs of the CCH integration and the changed business mix
resulted in a fall in the operating margin from 14,6% to 12,1%. Headline
earnings rose 42% from R37,6 million to R53,5 million. The lower growth in
headline earnings is as a result of the increase in interest paid from R4,9
million to R15,9 million. Based on the higher number of shares in issue
following the CCH acquisition, headline earnings per share of 80,5 cents are
comparable to the 80,1 cents achieved for the same period last year. The 31%
fall in attributable earnings to R25,9 million is as a result of goodwill
amortisation amounting to R27,6 million.
The financial effects of the integration of CCH can be seen in the strong
growth in revenue and operating income. However, growth in earnings per
share has been diluted in the short term as MGX absorbs the increase in the
number of shares in issue and the greater than anticipated rise in
indebtedness resulting from the acquisition.
Positive cash flow from operating activities amounted to R61,7 million, and
is indicative of the continued strong cash generating capacity of group
operations. Negative cash flow of R80,0 million from investing activities
was primarily the result of additions to MGX's property portfolio and the
repayment of vendor loans.
The increase in the net overdraft position from R79,2 million at the year
end to R130,9 million at 31 December 2001 reflects the above factors.
The group's transaction with Peregrine Systems Inc. (Peregrine Systems), of
the United States of America, and the issue of new shares in the group's UK-
based subsidiary, Didata UK Limited (Didata UK), outlined below, are part of
MGX's strategy to rationalise debt and conservatively restructure the
balance sheet after the expansion of the past year.
Black economic empowerment
During the six months MGX intensified its focus to develop an empowerment
profile at all levels of the organisation, and to achieve transformation
through a properly conceived and executed black economic empowerment
strategy in terms of all stakeholder groups. This entails setting targets
for empowerment, as follows:
* at shareholder level, in terms of the percentage to be held by empowerment
groups;
* at supplier level, by identifying and building relationships with
suppliers that fit an empowerment profile;
* within the organisation, through the group's graduate training programme
for previously disadvantaged individuals (PDI's) and the development of
staff who fit the PDI profile;
* at board level;
* continuing to build mutually beneficial relationships with other
empowerment partners in the IT industry; and
* building empowerment resources at management level throughout the
organisation.
The implementation of these initiatives is designed to create an empowered
MGX as a group, within the shortest possible timeframe.
Venture capital investment of GBP 1,75 million in Didata UK
MGX `s offshore subsidiary Didata UK has issued new shares amounting to 10%
of its issued share capital to two venture capital companies, for an amount
of GBP 1,75 million, effectively valuing Didata UK at GBP 17,5 million,
subject to certain conditions.
Didata UK is positioned for expansion in the fast growing field of content
management, through its provision of web-based information access and
integrated solutions. The capital was raised in part to help fund the
aggressive expansion planned for Didata UK and, of equal importance, to
obtain the endorsement of the European business model from independent
international investors.
Subsequent Events
Motswedi Technology Group (Motswedi)
MGX and Motswedi have resolved their recently publicised dispute. SITA, the
State Information Technology Agency, facilitated this outcome and acted as
mediator. The settlement terms are confidential, and have been accepted by
both parties. The terms of the settlement will not have a material financial
effect on MGX.
MGX remains confident about its existing and developing black economic
empowerment credentials, which were presented to SITA. On this basis, and as
a result of MGX's positive contribution in resolving the dispute with
Motswedi, the group remains well placed to be considered for state tenders
in the future.
Peregrine Systems investment of R140 million in MGX
MGX is currently the master distributor for Peregrine Systems' software
products in Africa. As a result of the close working relationship between
MGX and Peregrine Systems, and their complementary strategies, Peregrine
Systems had indicated that it wished to acquire a meaningful equity interest
in MGX. Both Peregrine Systems and MGX view their business relationship as
an important one for the future.
Peregrine Systems is a major global software company listed on the NASDAQ
stock market, with
4 000 employees located in 80 global offices. Since listing in 1997, it has
grown revenues from $35 million to $565 million in 2001 and its customers
include 92% of the Fortune 500 companies.
Peregrine Systems' software solutions include infrastructure management,
employee relationship management and business relationship management. They
help organisations achieve a state of frictionless business and thereby to
gain competitive advantage by reducing costs, improving profitability and
releasing capital.
MGX's products and services are targeted at three critical strategic needs
of customers - increased efficiency and productivity of key business
processes, business cost containment and business risk reduction. MGX's
commitment to its clients is to achieve measurable business outcomes in
terms of the above.
Consequently, MGX and Peregrine Systems have reached an agreement in terms
of which Peregrine Systems has invested R140 million in the form of a
Convertible Promissory Note bearing interest at a fixed rate of 10% per
annum. To the extent required, the transaction has been approved by the
relevant regulatory bodies.
The transaction does not give rise to any current or future foreign exchange
exposure to MGX.
The Convertible Note is convertible into MGX shares in the event that the
MGX share price on the JSE Securities Exchange South Africa trades above
R22,50 for more than 30 consecutive days, at which time Peregrine Systems
will have the right to convert all or part of the Convertible Note into MGX
shares at a share price of R22,50 per share, which shares will be issued at
no greater than a 10% discount to the 30 day weighted average share price at
the date of the conversion MGX has the right to provide new shares or
existing shares for the conversion. Should the Convertible Note not be
converted into MGX shares within five years of issue, it will be repayable
at that time. The Convertible Note is issued under a general authority
granted to the directors at MGX's annual general meeting, and the maximum
potential dilution represents approximately 8,4% of the current issued share
capital of MGX.
MGX will utilise the R140 million proceeds from the issue of the long term
Convertible Note to replace short-term borrowings. The financial effects of
the transaction will not have a material impact on earnings or net asset
value.
EC-Hold and the Securities Regulation Panel (SRP)
After the ruling by the executive committee of the SRP that there was an
effected transaction in EC-Hold as a result of concert party activities
between MGX and a Price Family Trust, MGX took the matter on appeal to the
full panel of the SRP, and additional evidence in support of MGX's position
was submitted. Further hearings before the full panel have been held
subsequent to the half-year, and MGX is awaiting the panel's findings. MGX
unequivocally reiterates that it did not breach the regulations of The
Securities Regulation Code on Takeovers and Mergers.
Prospects
The integration and rationalisation of the enlarged group following the
acquisition of CCH is drawing to a close and MGX is settling down with
common goals, philosophies and culture. The foundation is in place for MGX
to return to above average headline earnings per share growth.
The tough trading environment is expected to continue for the remainder of
the year. In the period ahead, MGX will continue to focus on the financial
fundamentals of solid annuity income and strong operating cash flows, and on
its strategic position as an innovator with the resources and expertise to
maintain its position at the forefront of the information technology sector.
Dividends
The policy of the group remains that the interests of shareholders are best
served if MGX does not pay a dividend, as cash generated will be used to
reduce debt as discussed above.
19 February 2001
Summarised consolidated income statement
Unaudited Unaudited Audited
6 months ended 6 months ended 12 months
ended
31 December 2001 31 December 2000 30 June 2001
R'000 R'000 R'000
Revenue 750 748 325 228 884 933
Operating income before
depreciation and
goodwill amortisation 108 885 57 130 158 472
Depreciation 18 178 9 709 28 958
Operating income before
goodwill
amortisation 90 707 47 421 129 514
Goodwill amortisation 27 643 18 854
Net operating income 63 064 47 421 110 660
Exceptional items 37 583
Ordinary profit before
interest 63 064 47 421 73 077
Net interest paid 15 948 4 870 14 262
Ordinary profit before
Taxation 47 116 42 551 58 815
Taxation 20 693 10 737 33 067
Ordinary profit before
associate income 26 423 31 814 25 748
Associate income 645 6 839 15 069
Ordinary profit before
Minorities 27 068 38 653 40 817
Minority shareholders
Interest 1 203 1 098 684
Attributable earnings 25 865 37 555 40 133
Weighted average number
of ordinary
shares in issue
(thousands) 66 380 46 886 53 924
Headline earnings per
ordinary share (cents) 80.5 80.1 157.3
Earnings per ordinary
share (cents) 39.0 80.1 74.4
Headline earnings
reconciliation
Profit attributable
to ordinary
Shareholders 25 865 37 555 40 133
Amortisation of
Goodwill 27 643 8 854
Exceptional items of
a capital
Nature 37 583
Capital profit from
associate (12 096)
(Profit)/Loss on sale
of assets (51) 371
Headline earnings 53 457 37 555 84 845
Summarised consolidated balance sheet
Unaudited Unaudited Audited
as at as at as at
31 December 2001 31 December 2000 30 June 2001
R'000 R'000 R'000
Equity & liabilities
Ordinary shareholders'
Interest 527 559 314 270 467 501
Outside shareholders'
Interest 2 054 4 082 851
Non-current liabilities
Non-Interest bearing
borrowings 15 631 1 200
Interest bearing
borrowings 67 508 88 193 117 621
Current liabilities 784 094 234 203 624 574
Trade payables 319 158 47 984 117 677
Other payables and
Accruals 188 160 7 014 217 174
Bank overdrafts 214 111 89 521 169 313
Taxation 4 135 8 454 14 034
Short-term portion of
long-term debt
Non-interest
bearing 24 247 22 030 51 462
Interest bearing 34 283 59 200 54 914
1 396 846 640 748 1 211 747
Assets
Property, plant &
Equipment 257 717 182 077 236 910
Intangibles 364 033 358 883
Net deferred tax asset 84 086 12 930 60 008
Financial assets 66 157 217 072 66 320
Long-term receivables 3 206
Current assets 624 853 228 669 486 420
Inventory 44 596 26 708 37 692
Trade receivables 454 799 138 393 298 305
Other receivables 42 271 21 660 42 340
Short-term financial assets 18 000
Bank balances 83 187 41 908 90 083
1 396 846 640 748 1 211 747
Summarised consolidated cash flow statement
Unaudited Unaudited Audited
6 months ended 6 months ended 12 months
ended
31 December 2001 31 December 2000 30 June
2001
R'000 R'000 R'000
Cash generated from
operations before
working capital changes 108 885 55 209 146 979
Changes in working
Capital (4 280) 13 901 (28 766)
Net finance expense (15 948) (4 870) (14 262)
Taxation paid (26 924) (15 227) (25 836)
Cash flows from operating
Activities 61 732 49 013 80 115
Cash flows from investing
Activities (79 979) (226 921) (257 393)
Cash flows from financing
Activities (33 447) 7 492 (24 834)
Net decrease in cash and
cash
Equivalents (51 694) (170 416) (202 112)
Cash and cash equivalents
at the
beginning of the period (79 230) (122 803) 122 803
Translation difference 79
Cash and cash equivalents
at the end of the year (130 824) (47 613) (79 230)
Represented by:
Bank balances 83 187 41 908 90 083
Bank overdrafts (214 111) (89 521) (169 313)
Statement of changes in equity
Share Share Non Distributable Total
Capital premium distributable reserve
reserve
Balance at 30 June
2001 456 260 814 (679) 266 783 527 374
Net profit for the
period 25 865 25 865
Offset of treasury
shares (45) (57 426) (57 471)
Rights issue in
subsidiary 31 500 31 500
Foreign currency
translation
Reserve 291 291
Balance at 31 December
2001 411 203 388 31 112 292 648 527 559
The same accounting policies and methods of computation that were used in
the annual financial statements of 30 June 2001 have been used in the
preparation of this report and are compliant with South African Statements
of Generally Accounting Practice.
Directors: RS Price* (Chairman), PA Landey* (Deputy Chairman) CS Hills
(Chief Executive), DE Baloyi*, RT Dalais* (Alternate: E Gutierrez-Garcia*),
AE Ling, DJJ McMahon, RD Shirley, NJ Webster, L Wengrowe* (*Non-executive)
Company Secretary: CD du Plessis
