| Tue 29 Apr 2003, 10:46 | | Mgx - Interim Results For The Six Months Ended 31 |
|
MGX - INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2002 AND FURTHER
CAUTIONARY ANNOUNCEMENT
MGX Holding Limited
(Incorporated in the Republic of South Africa)
Registration Number: 1983/012697/06
Share code: MGX
ISIN: ZAE000009262
INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2002 AND FURTHER CAUTIONARY
NOTICE
SUMMARISED CONSOLIDATED INCOME STATEMENT
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
31 Dec 31 Dec 30 Jun
R000 2002 2001 2002
Revenue 688 841 752 586 1 500 438
Operating (loss)/
income before
depreciation
and goodwill
amortisation (13 202) 99 390 228 256
Depreciation 28 384 18 178 42 863
Operating (loss)/
income before
goodwill amortisation (41 586) 81 212 185 393
Goodwill amortisation 45 802 27 643 82 895
Net operating
(loss)/income (87 388) 53 569 102 498
Goodwill impairments 235 238 - -
Write-down
of investments,
loans and properties 32 533 - 22 701
Ordinary (loss)/
profit before
interest (355 159) 53 569 79 797
Net interest paid 31 521 16 169 45 842
Ordinary (loss)/
profit before
taxation (386 680) 37 400 33 955
Taxation - current 11 946 20 693 33 804
Deferred tax reversal 62 104 - -
Ordinary (loss)/
profit before
associate income (460 730) 16 707 151
Associate income - 645 2 020
Ordinary (loss)/
profit before
minorities (460 730) 17 352 2 171
Minority shareholders"
interest (3 254) (3 655) (6 184)
Attributable (loss)/
earnings (457 476) 21 007 8 355
Number of ordinary
shares in issue
(thousands) 74 077 74 077 74 077
Weighted average
number of ordinary
shares in issue
(thousands) 66 525 66 380 66 563
Headline (loss)/
earnings per ordinary
share (cents) (216.7) 73.2 131.2
(Loss)/earnings per
ordinary share (cents) (687.7) 31.6 12.6
Headline earnings reconciliation
(Loss)/profit
attributable to
ordinary
shareholders (457 476) 21 007 8 355
Loss on restructure
of long term debt - - (10 929)
Amortisation and
impairment of
goodwill 281 040 27 643 82 895
Exceptional items
of a capital
nature 32 533 - 3 908
(Profit)/loss on
sale of assets (234) (51) 4 997
Headline earnings (144 137) 48 599 87 319
SEGMENTAL ANALYSIS
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
31 Dec 31 Dec 30 Jun
R000 2002 2001 2002
Revenue 688 841 752 586 1 500 438
Software Futures and
enTechnologies 98 497 104 567 231 976
Solutions 306 257 351 030 666 972
Metrofile 231 156 205 045 450 648
EC-Hold 48 410 91 944 150 842
Group Services and Other 4 521 - -
Operating (loss)/income
before depreciation
and goodwill
amortisation (13 202) 99 390 228 256
Software futures and
enTechnologies (4 045) 1 295 6 481
Solutions 6 295 60 556 95 177
Metrofile 37 971 34 851 89 977
EC-Hold (10 403) 4 622 18 914
Group Services and Other (43 020) (1 934) 17 707
SUMMARISED CONSOLIDATED BALANCE SHEET
Unaudited Unaudited Audited
as at as at as at
31 Dec 31 Dec 30 Jun
R000 2002 2001 2002
Equity and liabilities
Ordinary shareholders"
interest 10 804 519 491 473 766
Outside shareholders"
interest 5 105 (6 014) 8 358
Outside shareholders"pre-
ference shares
in subsidiary 28 433 - 28 433
Non-current liabilities
- non-interest-
bearing borrowings 4 295 21 405 27 674
- interest-bearing
borrowings 167 812 67 508 136 631
Current liabilities 719 292 785 715 696 633
Trade payables 95 004 320 462 147 925
Other payables,
accruals and deferred
income 226 730 188 477 208 916
Bank overdrafts 75 551 214 111 97 435
Taxation 21 788 4 135 7 651
Short-term portion of
long-term debt
- non-interest-
bearing 37 201 24 247 5 140
- interest-bearing 263 018 34 283 229 566
935 741 1 388 105 1 371 495
Assets
Property, plant and
equipment 364 272 264 846 319 537
Intangibles 153 158 364 033 419 488
Net deferred tax asset 10 481 84 086 69 244
Financial assets 19 708 45 802 49 517
Long-term receivables - - 10 516
Current assets 388 122 629 338 503 193
Inventory 56 500 44 597 68 450
Trade receivables 249 412 455 858 308 328
Other receivables 54 376 42 519 66 337
Bank balances 27 834 86 364 60 078
935 741 1 388 105 1 371 495
STATEMENT OF CHANGES IN EQUITY
Non
distribu- Distribu-
Share Share table table
Capital premium reserve reserve Total
Balance at
30 Jun 2002 407 201 794 9 056 262 509 473 766
Net loss for
the period (457 476) (457 476)
Share incentive
scheme loan (6 932) (6 932)
Pre-acquisition
deferred
tax reversal 28 923 28 923
Foreign currency
translation
reserve (27 477) (27 477)
Balance at
31 Dec 2002 407 194 862 10 502 (194 967) 10 804
SUMMARISED CONSOLIDATED CASH FLOW STATEMENT
Unaudited Unaudited Audited
as at as at as at
31 Dec 31 Dec 30 Jun
R000 2002 2001 2002
Cash (utilised in)/
generated from
operations before
working capital
changes (13 436) 99 390 179 169
Changes in
working capital 47 719 (4 648) (50 142)
Net finance expense (31 521) (16 169) (45 842)
Taxation paid (1 150) (26 924) (34 112)
Cash flows from
operating activities 1 612 51 649 49 073
Cash flows from
investing activities (79 802) (83 849) (176 922)
Cash flows from
financing activities 67 830 (21 900) 164 183
Net (decrease)/
increase in cash
and cash equivalents (10 360) (54 100) 36 334
Cash and cash
equivalents at the
beginning of the
period (37 357) (73 647) (73 648)
Translation difference - - (43)
Cash and cash
equivalents at the
end of the period (47 717) (127 747) (37 357)
Represented by:
bank balances 27 834 86 364 60 078
bank overdrafts (75 551) (214 111) (97 435)
COMMENTS
Shareholders were advised on 27 November 2002 that the group"s results for the
six months to December 2002 would be significantly worse than those for the
corresponding period in the previous year. The decline in performance was
attributed primarily to a difficult trading environment, increased financing
costs due to higher debt and interest rate levels, and once-off expenses. At
the same time, it was announced that a strategic review of the business had been
initiated under a reconstituted board.
A progress report issued on 29 January 2003 noted that while MGX"s businesses
were reasonably sound, the group had suffered from the effects of a number of
reputational issues as well as a general lack of leadership, direction and
control. In addition, its cash flow could not service its debt. A range of
remedial actions was consequently being implemented. Their overall aim was to
restructure MGX as a smaller but profitable business.
BALANCE SHEET
The accounting function has been strengthened not only to improve the group"s
future financial housekeeping but also to produce a reliable record of its
recent past. The clean up of the accounts is now complete and the board
believes that the figures reported for the review period are a fair reflection
of the reality of the group"s financial condition.
In order to present a balance sheet that fairly reflects the financial position,
the asset values have been re-assessed. Investments and loans have been written
down to fair market or realisable values. Goodwill has been impaired, while
deferred tax assets that are unlikely to be utilised have been reversed.
Working capital has been assessed in some detail to ensure a fair carrying value
for inventory and the recoverability of the accounts receivable. Full provision
has been made for a possible unfunded liability of R9.6 million in the pension
fund. During the period Didata UK Limited acquired the Rivendell premises it
occupies. Other buildings have been impaired down to their market value and the
capitalised development costs that do not have a current or foreseeable revenue
stream have been impaired.
Conversely, while all appropriate impairments have been charged to the relevant
assets, no revaluations have been brought to account where expected realisable
or market values or other assets exceed their carrying values, e.g. Metrofile.
ACCOUNTING POLICIES
The accounting policies and methods of computation were the same as those used
for the 30 June 2002 annual financial statements and are in compliance with the
South African Statements of Generally Accepted Accounting Practice, except for
AC 133, which has not been applied. Prior year comparatives have been restated
to include enTechnologies in the consolidated results.
THE R100 MILLION LIFEBOAT
A consortium of banks has provided the group with a R100 million revolving
credit facility, which is repayable by 17 June 2003. The purpose of this
facility is to ease short-term funding pressures, thus enabling the group to
reduce its debt burden through the orderly sale of some of its businesses. At
31 December 2002 this facility was unused. Currently R47m is being utilised.
THE DISPOSAL PROCESS
Subsequent to the reporting date MGX has concluded disposals of cdp Africa and
enTechnologies and collected outstanding sale considerations totalling some R12
million. Agreements in principle have been reached for the sale of Business
Continuity Solutions, Enterprise Solutions (previously part of MGX Solutions)
and the 50% interest in Drive Control Corporation. A further announcement will
be made once these transactions have been finalised. Offers have also been
invited from prospective buyers for some of the group"s properties.
BLACK ECONOMIC EMPOWERMENT (BEE)
It is one of the board"s objectives to introduce a meaningful BEE component at
subsidiary level as soon as possible. Progress has also been made on this front
and agreement in principle has been reached with a prospective BEE partner,
Vulisango Holdings, regarding its participation in two of the group"s
businesses, subject to approval by the MGX board, the bank consortium and
shareholders, where appropriate.
THE EC-HOLD ISSUE
Discussions were initiated with the Securities Regulation Panel ("SRP")
regarding a process for resolving this matter but at this stage a mutually
acceptable way forward has not yet been found. In the worst-case scenario, MGX
would have to pay out R30m to increase its investment in EC-Hold, which would in
turn resolve the dispute with the SRP.
DRIVE CONTROL CORPORATION (DCC)
The short-term non-interest-bearing debt of R37.2m (30 June 2002: Long-term debt
of R19.2m) represents the amount due to the vendors of DCC in respect of the
initial 50% investment in DCC. It is the differential between the guaranteed
share price of R33.75 per MGX share and the closing price of R2.90 at 31
December 2002 on 1.2 million shares.
The purchase price for the remaining 50% holding in DCC could range from R64.5m
to R108.3m. If the full amount of R108.3m is paid in shares, using the closing
price of R2.90 at 31 December 2002, the number of shares to be issued will total
37.3 million, which equates to 50.4% of the issued shares of MGX (30 June 2002:
14.1 million shares at R7.70, 19.0% of the issued shares).
It is anticipated that the above liabilities would be extinguished should an
agreement be concluded for the disposal of MGX"s current investment in DCC.
LEASE COMMITMENTS
At the reporting date, future leasing charges for premises, equipment and motor
vehicles amounted to R283.5m, of which R72.6m was payable within one year (30
June 2002: R430.5m, R91.5m).
RELATED PARTY TRANSACTIONS
The balances of loans raised in the current period from related parties are as
follows: Eurevest Leasing (Pty) Ltd - R34m, Drive Control Corporation (Pty) Ltd
- R15m, Capital Africa Limited and South African Private Equity Trust 3 - R20m.
FURTHER CAUTIONARY ANNOUNCEMENT
Shareholders are referred to the previous cautionary announcements on 29 January
2003 and14 March 2003. Negotiations are still in progress that, if successfully
concluded, may have a material effect on the price of the company"s shares.
Accordingly, shareholders are advised to continue to exercise caution when
dealing in the company"s shares until a further announcement is made.
BOARD AND MANAGEMENT
Peter Flack, Antony Ball, Roy Midlane, Lindsay Robertson and Christopher
Seabrooke have joined the board and Daniel McMahon and Norman Webster have been
re-appointed as directors. Ronnie Price, Patrick Landey, Chris Hills, Aletha
Ling, Thierry Dalais, Linda Wengrowe and Rory Shirley have resigned. FRM
Strategies have been retained to manage the strategic review process.
PROSPECTS
In difficult circumstances, MGX"s recovery efforts have made reasonable
progress. The board has a clear view of the group"s condition, a firm grip on
its control and a feasible strategy for its future; some businesses have already
been sold; and while all the various restructuring transactions have not yet
been concluded, they have been brought closer to fruition. The board wishes to
record its appreciation to the group"s operational management, capital providers
and advisors for the support that made these advances possible.
However, since the review period the group"s trading performance has
deteriorated further, partly because of negative market sentiment towards MGX
and partly because of the continuing weakness of the IT sector.
Given this operational downturn and the effect of current market conditions on
the prices of the MGX businesses that are for sale, their disposal will not
reduce the debt at the centre to a level bearable to the group. The board is,
however, of the opinion that if the group and its debt could be restructured,
MGX could be rebuilt over a period of two to three years as a sound and
sustainably profitable business. Proposals in this regard are currently being
considered by the bank consortium and negotiations are at an advanced stage.
The continuation of the group as a going concern remains contingent on the
continued support for the group by its bankers and financiers.
The directors have resolved not to pay any dividend.
On behalf of the board
Peter Flack Roy Midlane
Executive chairman Chief financial officer
29 April 2003 Johannesburg
Registered office:
126 14th Road, Erand Gardens, Midrand, 1685.
Sponsor:
Standard Corporate and Merchant Bank
(A division of The Standard Bank of South Africa Limited)
(Registration number 1962/000738/06)
Transfer secretaries:
Computershare Investor Services Limited,
70 Marshall Street, Johannesburg, 2001
Investor & Media Relations:
contact Kathy du Plessis on Tel: (011) 728 4701, Fax: (011) 728 2547 or e-mail:
gen@dpapr.com
www.mgxgroup.com
Directors:
P Flack (Executive Chairman and Interim CEO) (Alternate: A Moffat), A Ball*
(Alternate: E Garcia), D Baloyi*, D McMahon, R Midlane, L Robertson, C
Seabrooke*, N Webster.
(*Non-executive)
