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Comparex Holdings Limited - Preliminary Reviewed Group Results
Comparex Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1994/002506/06)
(Share code: CPX ISIN: ZAE000016812)
The preliminary reviewed group results of Comparex Holdings Limited for the year
ended 31 May 2002, prepared on the assumption that the disposal of the European
operations will be approved, are set out below:
PRELIMINARY REVIEWED GROUP RESULTS FOR THE YEAR ENDED 31 MAY 2002
Group Income Statement
2002 2002 2002 % 2001
R million Con- Discon-
tinuing tinuing Statutory Change Statutory
Revenue 2 703,6 2 703,2 5 406,8 0,3 5 389,8
Cost of sales 1 838,8 1 742,2 3 581,0 6,5 3 362,6
Margin 864,8 961,0 1 825,8 (9,9) 2 027,2
Administrative
expenses 643,6 1 027,0 1 670,6 1 513,9
Earnings/(Loss)
before interest,
taxation and
depreciation 221,2 (66,0) 155,2 (69,8) 513,3
Depreciation 63,4 141,4 204,8 (33,1) 306,3
Trading profit/
(loss) 157,8 (207,4) (49,6) (124,0) 207,0
Net investment
income 183,2 29,4 212,6 179,8
Foreign exchange
(losses)/gains (0,6) 198,1 197,5 46,9
Associate
company
earnings/(loss)
before taxation 5,6 (3,7) 1,9 (0,3)
Earnings before
Exceptional
items 346,0 16,4 362,4 (16,4) 433,4
Exceptional
losses (380,5) (243,9) (624,4) (6,5)
(Loss)/Earnings
before
taxation (34,5) (227,5) (262,0) (161,4) 426,9
Taxation 91,5 182,4 273,9 45,3
(Loss)/Earnings
after taxation (126,0) (409,9) (535,9) (240,4) 381,6
Minorities 26,3 26,3 36,3
(Loss)/Earnings
attributable to
shareholders (152,3) (409,9) (562,2) (262,8) 345,3
Adjusting items for
headline earnings:
Impairment of
assets 38,3 38,3 65,2
Impairment of assets
as a result of proposed
disposal of
European operations 161,0 161,0
Impairment of
goodwill 350,6 350,6
Profit on sale
of investments (8,8) (22,9) (31,7) (114,6)
Reversal of prior
periods overprovision
for closure of
businesses (7,0) (8,3) (15,3)
Amortisation of
intangible assets 0,2 0,2
Attributable to
outside shareholders (13,8)
Headline earnings/
(loss) 220,8 (279,9) (59,1) (120,9) 282,1
Weighted average
number of shares
in issue (000`s) 295 311 295 311 295 311 328 228
Fully diluted
weighted number
of shares
in issue (000`s) 307 985 307 985 307 985 (24,7) 409 231
(Loss)/Earnings
per share (cents) (51,6) (138,8) (190,4) 105,2
Headline earnings/
(loss) per
share (cents) 74,8 (94,8) (20,0) (123,3) 85,9
Group Balance Sheet
2002 2002 2002 2001
R million Con- Discon-
tinuing tinuing Statutory Statutory
ASSETS
Non-current assets
Properties, fixtures,
equipment and vehicles 73,6 79,6 153,2 166,7
Capitalised leased
properties 191,3 191,3 202,1
Rental assets 0,1 71,2 71,3 74,7
Investment in
associate companies 13,9 9,7 23,6 (0,3)
Other long-term
investments 39,6 2,7 42,3 65,0
Long-term loans
and advances 394,6 394,6 418,6
Deferred taxation asset 9,5 1,1 10,6 176,0
722,6 164,3 886,9 1 102,8
Current assets
Inventories 91,1 129,4 220,5 259,2
Trade accounts receivable 497,5 165,3 662,8 1 041,2
Other accounts receivable 49,5 105,8 155,3 120,4
Prepayments 52,2 43,7 95,9 48,0
Cash resources and
financial instruments 1 772,8 814,3 2 587,1 3 741,1
2 463,1 1 258,5 3 721,6 5 209,9
TOTAL ASSETS 3 185,7 1 422,8 4 608,5 6 312,7
EQUITY AND LIABILITIES
Ordinary shareholders`
funds 1 836,2 223,0 2 059,2 3 365,4
Minority interests 3,7 3,7 126,3
1 839,9 223,0 2 062,9 3 491,7
Non-current interest
bearing liabilities 243,2 3,8 247,0 252,3
Non-current interest
free liabilities 393,7 393,7 380,0
Post-retirement
obligations 181,8 181,8 134,2
Deferred taxation
liability 1,9 1,9 1,3
638,8 185,6 824,4 767,8
Current liabilities
Bank overdrafts and
short-term borrowings 35,9 0,4 36,3 35,4
Other short-term
liabilities 671,1 1 013,8 1 684,9 2 017,8
707,0 1 014,2 1 721,2 2 053,2
TOTAL EQUITY AND
LIABILITIES 3 185,7 1 422,8 4 608,5 6 312,7
Group Statement of Changes in Equity
Share Non-distri- Foreign Distri-
capital butable exchange butable
R million and premium reserves reserve reserves Total
Balance at
31 May 2001 701,7 218,0 6,6 2 439,1 3 365,4
Foreign exchange
differences
arising on
consolidation (59,5) (59,5)
Attributable
loss per the
income statement (562,2) (562,2)
Realised on
acquisition of
shares in
Comparex Africa (200,0) (200,0)
Deferred taxation
Benefit on trademark
amortisation 32,4 32,4
Transfers between
reserves 1,3 (1,3)
Cost of shares
repurchased (516,9) (516,9)
Balance at
31 May 2002 184,8 51,7 (52,9) 1 875,6 2 059,2
Discontinuing
operations (19,3) 52,9 (256,6) (223,0)
184,8 32,4 1 619,0 1 836,2
Group Cash Flow Statement
2002 2002 2002 2001
Con- Discon-
R million tinuing tinuing Statutory Statutory
Earnings/(Loss)
before interest,
taxation and
depreciation 221,2 (66,0) 155,2 513,3
Loss on disposal
of assets 3,0 8,0 11,0 37,9
Movement in
provisions 39,7 (76,9) (37,2) (140,7)
Foreign exchange
and intergroup
transfers (21,3) (114,6) (135,9) (146,7)
Working capital
changes (197,3) 139,2 (58,1) 120,0
Cash generated from
operations 45,3 (110,3) (65,0) 383,8
Interest received 226,8 32,2 259,0 231,0
Foreign exchange
(losses)/gains (0,6) 198,1 197,5 46,9
Dividends received 0,7
Interest paid (43,6) (2,8) (46,4) (52,0)
Dividends paid (0,2) (0,2)
Taxation paid (98,7) (16,1) (114,8) (20,9)
Net cash flow from
operating activities 129,0 101,1 230,1 589,5
Cash flows from investing activities
(Invested)/Proceeds
from disposal
of investments (688,4) (43,4) (731,8) 2 013,1
Net movement in
properties, fixtures,
equipment and
vehicles, rental
and leased assets (39,4) (99,9) (139,3) (215,5)
Net cash flow from
investing activities (727,8) (143,3) (871,1) 1 797,6
Cash flows from
financing activities
Shares repurchased (516,9) (516,9) (162,9)
Movement in long-term
loans and advances 3,9 (0,9) 3,0 100,5
Net cash flow from
financing activities (513,0) (0,9) (513,9) (62,4)
Net changes in cash
and cash
equivalents (1 111,8) (43,1) (1 154,9) 2 324,7
Cash at beginning
of year 2 848,7 857,0 3 705,7 1 381,0
Cash at end of year 1 736,9 813,9 2 550,8 3 705,7
Group Segmental Analysis
2002 2002 2002 2001
Con- Discon- %
R million tinuing tinuing Statutory Change Statutory
REVENUE
AFRICA
(principally
South Africa) 2 566,0 2 566,0 0,3 2 557,3
EUROPE 62,8 2 703,2 2 766,0 1,0 2 739,9
UNITED STATES
OF AMERICA 74,8 74,8 (19,2) 92,6
2 703,6 2 703,2 5 406,8 0,3 5 389,8
TRADING PROFIT
AFRICA
(principally
South Africa) 164,1 164,1 (13,9) 190,5
EUROPE 0,9 (157,9) (157,0) (271,0) 91,8
UNITED STATES
OF AMERICA 1,3 1,3 116,9 (7,7)
CENTRAL FUNCTIONS (8,5) (49,5) (58,0) 14,2 (67,6)
157,8 (207,4) (49,6) (124,0) 207,0
REVENUE
Continuing
businesses 2 697,1 2 697,1 2 564,8
Acquisitions 5,4 5,4
Disposed businesses/
converted to
associates 1,1 45,6 46,7 118,2
Discontinuing
businesses 2 657,6 2 657,6 2 706,8
2 703,6 2 703,2 5 406,8 5 389,8
TRADING PROFIT
Continuing
businesses 152,6 152,6 182,4
Acquisitions 0,8 0,8
Disposed businesses/
converted to
associates 4,4 4,4 (24,8)
Discontinuing
businesses (207,4) (207,4) 49,4
157,8 (207,4) (49,6) 207,0
Business Groupings Revenue
Services 1 765,1 360,8 2 125,9 9,9 1 935,2
Storage 100,1 1 728,6 1 828,7 0,2 1 825,0
Servers 322,1 611,7 933,8 (7,6) 1 010,5
Networks 447,7 1,8 449,5 0,7 446,4
Application Software
Providers and
Proprietary
Software 68,6 0,3 68,9 (60,1) 172,7
2 703,6 2 703,2 5 406,8 0,3 5 389,8
Other Group Salient Information
R million 2002 2002 2002 2001
(unless otherwise Con- Discon-
indicated) tinuing tinuing Statutory Statutory
Exceptional items
Profit on sale
of investments 8,8 22,9 31,7 114,6
Impairment of
assets (38,3) (38,3) (65,2)
Impairment of
goodwill (350,6) (350,6)
Restructure costs (7,4) (114,1) (121,5) (55,9)
Release of provisions 7,0 8,3 15,3
Impairment of
European assets (161,0) (161,0)
(380,5) (243,9) (624,4) (6,5)
Balance Sheet Ratios
Number of shares
in issue (000`s) 294 545 331 153
Fully diluted number
of shares (000`s) 306 468 412 155
Net asset value per
share (cents) 700,3 1 054,4
Fully diluted net
asset value per
share (cents) 673,1 847,2
Debt-equity ratio (%) 13,7 8,2
Contingent liabilities
Guarantees issued
to third parties 3,5 6,4 9,9
Other 4,9 4,9
Commitments
Capital 1,4 0,5 1,9
Unutilised forward
exchange contracts 62,1 62,1 82,1
Lease commitments 234,8 364,0 598,8 413,9
Accounting Policies
These preliminary group results are prepared in accordance with South African
Statements of Generally Accepted Accounting Practice. The accounting policies
used in the preparation of these financial results are consistent with those
used in the annual financial statements for the year ended 31 May 2001. The
above results have been reviewed by the group`s auditors Messrs Deloitte &
Touche and PricewaterhouseCoopers Inc and a copy of their unqualified report is
available for inspection at the company`s registered offices.
COMMENTS
The board of directors hereby presents the group`s preliminary reviewed results
for the year ended 31 May 2002. In the light of the proposed sale of the
European operations the results reflect a split between continuing African
operations and the to be discontinued European operations.
Operational review
Shareholders are referred to the trading updates published in March and June
2002.
Europe
Expressed in Euro`s the group`s European operations recorded a reduction in
revenue of 23%. However, as a result of the weakening of the Rand against the
Euro, when expressed in Rand, revenue has remained constant. This reduction of
revenue, in conjunction with margin pressure, has lead to a significant trading
loss of R207,4 million.
The European headcount was reduced from 1 290 to 1 062 at 31 May 2002.
Retrenchment costs of approximately R93 million have been reflected in
exceptional losses as part of the restructure costs.
Due to the uncertain market in Europe and in accordance with GAAP, the directors
have decided to reverse the deferred tax assets relating to European operations.
Consequently deferred tax assets of R169 million have been impaired. This
impairment has been included in the taxation line in the income statement.
Africa
The revenue from African operations remained constant. Gross margins
deteriorated slightly, the effects of which were not fully offset by savings in
operating expenses, resulting in a 14% decline in trading profit to R164,1
million. In the second half of the year the African operations succeeded in
equaling their first half performance, thereby exceeding the directors`
expectations as conveyed in the two trading updates referred to above.
Particularly pleasing is the continued growth in the services and annuity
businesses, and product-related revenue now represents less than 30% of Africa`s
revenue. Cash flow remained positive within this operation.
In terms of AC102, tax benefits resulting from trademark allowances claimed are
now accounted for directly against equity. The taxation charge in the income
statement has therefore been negatively impacted by an additional tax charge of
R32,4 million in respect of Comparex Africa`s trademark claim.
The African operations have successfully completed the re-structuring of the
business around a client-centric business model. The last of the minor non-core
businesses were sold. The business model was also supplemented through the
acquisition of the Enterprise Architecture division from Metatek. Comparex
Africa has further entrenched itself as the outsourcing IT partner of choice in
South Africa. A new business initiative, focusing specifically on business
growth in the African continent, was initiated during the year. This business
unit has already made major inroads into the continent, with significant
successes being experienced in Malawi, Tanzania and Ethiopia. With a strong
pipeline, it is expected that this business unit will grow rapidly.
The number of employees reduced from 4 554 to 4 182 by year-end, mostly as a
result of the disposal of several minor non-core lines of business.
Other significant matters
During the year the group repurchased 82 718 657 Comparex shares at a cost of
R826 million. 29 508 195 of these shares and R378,7 million cash, were used by
the group to purchase NITAC`s shareholding in Comparex Africa. The acquisition
of the shareholding in Comparex Africa resulted in goodwill of approximately
R350 million, which was then impaired as it was deemed to be inherent goodwill
to the group.
As previously reported, deductions claimed in 1995 in respect of trademarks have
been disallowed by the South African Revenue Services, and are the subject of an
appeal to the special tax court. The disallowance has been extended to the 1996
and 1997 tax years. It is anticipated that the ruling in the tax court will be
followed for each of these years. On the advice of Senior Counsel, the directors
are confident of a successful appeal.
Post Balance Sheet events
As announced on 29 August 2002, the board has resolved that it would be in the
best interests of the shareholders to reduce the risk inherent in the continued
investment in Comparex Europe and thereby safeguard the group against further
cash losses.
In order to achieve this objective the board has resolved, subject to the
fulfillment of certain conditions precedent, to dispose of the investment in
Europe to management for Euro 8,5 million, in cash.
A circular elaborating on this transaction and convening an ordinary
shareholders` meeting will be issued in due course.
The table below sets out the pro forma financial effects of the proposed
Comparex Europe disposal on a Comparex shareholder, subject to any further
adjustments which may become necessary in respect of the period from 1 June 2002
to the effective date of the transaction.
The net tangible asset value per Comparex share in the "Pro forma after the
Comparex Europe disposal" column is based on the assumption that the Comparex
Europe disposal was implemented on 31 May 2002, and includes an adjustment for
anticipated losses of R145 million from 1 June 2002 to the effective date of the
transaction.
Before the Pro forma
Comparex after the
Europe disposal Comparex Europe %
(cents) disposal (cents) change
Earnings per share (190,4) (49,5) 74
Headline earnings per share (20,0) 76,9 484,5
Net tangible asset
value per share 700,3 651,0 (7,0)
Dividend
The board does not intend to propose a dividend until the proposed diposal of
the European operations has become unconditional and the future strategy of
Comparex Africa has been resolved, at which point the dividend policy will be
revisited.
Prospects
Trading conditions in Europe have not improved since year-end and Europe is not
expected to perform better than the anticipated losses of R145 million for the
period to the effective date of the sale of
31 October 2002.
Africa has completed the streamlining of its business and stability has been
reached following the disposal of minor non-core lines of business during the
year. The introduction of appropriate empowerment into the organisation will
form a further important pillar in the future success of the organisation.
Africa is therefore concentrating on, and budgeting for, growth and is well
placed to benefit from the business strategies that have been and continue to be
introduced.
On behalf of the board
DM Nurek KRM Evans
Acting Chairman Group Financial Director
Midrand, 12 September 2002
Directors: DM Nurek (Acting Chairman), RS Berkowitz (Acting Deputy Chairman), PA
Watt (Acting Chief Executive Officer), S Carlin, WAM Clewlow, JR Cohen, WA du
Plessis, KRM Evans, L Lambrechts, WJC Mitchell and FJ van der Merwe.
Registered office: PQ Park Postal: Private Bag X48
789 16th Road Halfway House
Randjespark 1685
Midrand
1685
Transfer secretaries: Computershare Investor Services Limited
Postal: PO Box 1053
11 Diagonal Street Johannesburg
Johannesburg 2000
2001
Internet address: http://www.comparexgroup.com
Date: 16/09/2002 04:48:05 PM Produced by the JSE SENS Department
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