| Thu 27 Nov 2003, 9:12 | | REVIEWED GROUP RESULTS FOR THE YEAR ENDED 30 JUNE |
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MGX HOLDINGS LIMITED - REVIEWED GROUP RESULTS FOR THE YEAR ENDED 30 JUNE 2003
AND FURTHER CAUTIONARY ANNOUNCEMENT
MGX Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1983/012697/06)
Share Code: MGX
ISIN: ZAE000009262
REVIEWED GROUP RESULTS FOR THE YEAR ENDED 30 JUNE 2003 AND FURTHER CAUTIONARY
ANNOUNCEMENT
SUMMARISED CONSOLIDATED INCOME STATEMENT
Reviewed Audited
12 months 12 months
ended ended
30 June 30 June
R000 2003 2002
Revenue 1 251 051 1 500 438
Operating income before
foreign exchange
losses/(gains) 5 658 217 472
Foreign exchange
losses/(gains) 9 169 (10 784)
Operating (loss)/income
before depreciation
and goodwill
amortisation (EBITDA) (3 511) 228 256
Depreciation and
trademark amortisation 57 829 42 863
Operating (loss)/ income before
goodwill amortisation
exceptional items and
finance costs (61 340) 185 393
Goodwill amortisation 69 465 79 420
Operating (loss)/income
before exceptional items
and finance costs (130 805) 105 973
Goodwill impairment 331 269 3 475
Exceptional items 47 343 22 701
Operating (loss)/income
before finance costs (509 417) 79 797
Net finance costs 78 687 45 842
(Loss)/income before
taxation (588 104) 33 955
Taxation - current 50 364 33 804
- deferred 65 265 -
(Loss)/income after
taxation (703 733) 151
Share of associate"s
income - 2 020
Outside shareholders"
share of losses 1 657 6 184
Attributable (loss)/earnings (702 076) 8 355
Number of ordinary shares in
issue (000) 73 475 73 503
Number of ordinary shares
in treasury (000) 6 877 6 877
Number of ordinary shares in
issue after deducting
treasury shares (000) 66 598 66 626
Weighted average number
of ordinary shares in
issue (000) 66 589 66 563
Headline (loss)/earnings
per ordinary share (cents) (396.2) 145.3
(Loss)/earnings per
ordinary share (cents) (1 054.3) 12.6
Reconciliation of headline
(loss)/earnings
Attributable (loss)/earnings (702 076) 8 355
(Profit)/loss on sale of
property, plant and equipment (4 139) 4 997
Capital loss/(profit) on
sale of investments 4 031 (1 907)
Amortisation and impairment
of goodwill 400 734 82 895
Impairment of property,
plant and equipment 22 831 -
Impairment of investments 11 280 1 341
Impairment of loans receivable 3 513 -
Exceptional items of a
capital nature - 1 046
Headline (loss)/earnings (263 826) 96 727
Headline earnings as
previously stated 87 319
Profit on restructuring of
long-term debt 10 929
Exceptional items of a
capital nature (1 521)
Headline earnings restated in
terms of Circular 7/2002 96 727
SUMMARISED CONSOLIDATED BALANCE SHEET
Reviewed Audited
as at as at
30 June 30 June
R000 2003 2002
ASSETS
Non-current assets 435 222 799 058
Property, plant and equipment 333 291 319 537
Financial assets 16 700 49 517
Goodwill 84 982 417 692
Intangibles 103 1 796
Long-term receivables 146 10 516
Deferred taxation asset 2 931 71 728
Current assets 359 831 503 193
Inventories 44 025 68 450
Trade receivables 181 420 308 328
Other receivables 46 516 66 337
Taxation 3 639 -
Bank balances 84 231 60 078
Total assets 797 984 1 373 979
EQUITY AND LIABILITIES
Equity capital and reserves (208 857) 510 557
Ordinary shareholders"
interest (240 691) 473 766
Outside shareholders"
interest 3 401 8 358
Outside shareholders"
preference shares in
subsidiary 28 433 28 433
Deferred taxation liability 738 2 484
Non-current liabilities 169 075 164 305
Non-interest-bearing
liabilities - 27 674
Interest-bearing liabilities 169 075 136 631
Current liabilities 837 028 696 633
Trade payables 102 178 147 925
Other payables and provisions 124 979 150 666
Deferred revenue 53 935 58 250
Taxation 54 188 7 651
Bank overdrafts 161 082 97 435
Non-interest-bearing
liabilities 73 477 5 140
Interest-bearing liabilities 267 189 229 566
Total equity and liabilities 797 984 1 373 979
Net (liability) / asset value
per ordinary share (cents) (3.6) 7.1
SEGMENTAL ANALYSIS
Reviewed Audited
12 months 12 months
Dis- ended ended
Continuing continuing 30 June 30 June
R000 operations operations 2003 2002
Revenue by
segment 504 974 746 077 1 251 051 1 500 438
Enterprise
solutions - 185 461 185 461 383 364
Business
continuity - 81 836 81 836 74 665
Content
management 440 275 - 440 275 487 206
Storage
solutions - 318 842 318 842 348 969
Software
development 62 987 159 938 222 925 260 182
Central services
and other 1 712 - 1 712 (53 949)
Revenue by
region 504 974 746 077 1 251 051 1 500 438
South Africa 297 778 730 106 1 027 884 1 281 970
United States
of America - 15 971 15 971 10 572
United Kingdom 207 196 - 207 196 207 896
EBITDA by
segment 15 483 (18 994) (3 511) 228 256
Enterprise
solutions - (11 770) (11 770) 59 446
Business
continuity - 11 693 11 693 14 041
Content
management 71 457 - 71 457 93 397
Storage
solutions - (8 091) (8 081) 37 580
Software
development (17 026) (14 237) (31 263) 18 875
Central services
and other (38 948) 3 411 (35 537) 4 917
EBITDA by region 15 483 (18 994) (3 511) 228 256
South Africa (2 227) 3 203 976 223 473
United States
of America - (22 197) (22 197) (15 135)
United Kingdom 17 710 - 17 710 19 918
STATEMENT OF CHANGES IN EQUITY
Non-
distri-
Share Share butable
R000 capital premium reserves
Balance at 30 June 2001 410 200 987 736
Attributable earnings
Impairment of share
incentive shares (6) (3 656)
Offset of treasury shares 3 4 463
Revaluation of associate 6 834
Vendor loan released 7 600
Foreign currency reserve (6 114)
Balance at 30 June 2002 407 201 794 9 056
Attributable loss
AC133 transitional adjustment
Impairment of share
incentive shares 1 (6 984)
Offset of treasury shares 852
Foreign currency translation
reserve (4 389)
Balance at 30 June 2003 408 195 662 4 667
STATEMENT OF CHANGES IN EQUITY (CONTINUED)
Distri-
butable
R000 reserves Total
Balance at 30 June 2001 254 154 456 287
Attributable earnings 8 355 8 355
Impairment of share
incentive shares (3 662)
Offset of treasury shares 4 466
Revaluation of associate 6 834
Vendor loan released 7 600
Foreign currency reserve (6 114)
Balance at 30 June 2002 262 509 473 766
Attributable loss (702 076) (702 076)
AC133 transitional adjustment (1 861) (1 861)
Impairment of share
incentive shares (6 983)
Offset of treasury shares 852
Foreign currency translation
reserve (4 389)
Balance at 30 June 2003 (441 428) (240 691)
SUMMARISED CONSOLIDATED CASH FLOW STATEMENT
Reviewed Audited
12 months 12 months
ended ended
30 June 30 June
R000 2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES
Cash (utilised in)/generated
from operations before net
working capital changes (1 297) 179 169
Decrease / (increase)in net
working capital 81 192 (50 142)
Cash generated
from operations 79 895 129 027
Net finance costs (78 687) (45 842)
Normal taxation paid (7 288) (34 112)
Net cash (outflow)/inflow
from operating activities (6 080) 49 073
Net cash outflow from
investing Activities (85 622) (176 922)
Net cash inflow from financing
activities 50 398 164 183
Net (decrease)/increase in
cash and cash equivalents (41 304) 36 334
Cash and cash equivalents
at the beginning of the year (37 357) (73 648)
Translation difference on
opening cash position 1 810 (43)
Cash and cash equivalents
at the end of the year (76 851) (37 357)
Bank balances 84 231 60 078
Bank overdrafts (161 082) (97 435)
COMMENTS
THE PERIOD IN RETROSPECT
During the period under review, MGX"s high debt burden, deteriorating trading
performance of the group and legal disputes nearly caused the group to collapse.
This was avoided through the support of a consortium of the group"s bankers who
provided additional working capital facilities and, together with Eurevest and
Drive Control, have now agreed to a restructure of the group"s debt.
The group has disposed of Business Continuity Solutions, Enterprise Solutions,
Storage Solutions, Software Futures, enTechnolgies, Magic, cdpAfrica and its
Linbro and Faerie Glen properties. It is in the process of disposing of Graphic
Data, EC-Hold and its Midrand property.
MGX has settled its disputes with Drive Control and disposed of its stake in
Drive Control. It has concluded a settlement agreement with Cycad Financial
Holdings Ltd concerning EC-Hold, in terms of which, inter alia, court actions
brought by the parties against each other will be withdrawn and MGX will acquire
Cycad"s shareholding in EC-Hold, subject to certain suspensive conditions.
Some of the above transactions are still subject to approval or ratification by
shareholders and certain regulatory authorities.
Eurevest Leasing (Pty) Limited has perfected its pledges on 48.9 million shares
held by MGX in EC-Hold. Eurevest is negotiating to acquire MGX"s remaining EC-
Hold shares and claims for a nominal amount. MGX has received certain
indemnities from Ronnie Price regarding future claims against MGX arising from
the dispute with the SRP relating to EC-Hold.
RESTRUCTURED GROUP
Shareholders" attention is drawn to the detailed announcement published today
relating to the proposed restructure of the group and a section 311 scheme of
arrangement amongst creditors. The salient features of this arrangement are
that:
* The banking consortium will make additional working capital facilities
available to the group.
* The businesses of Metrofile will be transferred, as a going concern, to a
new company wholly owned by MGX.
* General banking facilities totalling R116m will bear interest and be
serviced in the ordinary course of business.
* The remaining group debt will be structured as convertible debt instruments
in the new Metrofile and in MGX. These will be serviced from free cash flow or
may ultimately be converted into equity. Accordingly, the group will no longer
have high cash demands for debt service that are not covered by its normal free
cash flows.
* Up to R142m of debt in MGX and the new Metrofile may be subordinated to
other creditors to the extent that liabilities exceed the book value of assets.
CHANGE OF NAME
As the business of Metrofile will be the sole material trading operation, it
will be proposed to shareholders that the company"s name be changed from MGX
Holdings Limited to Metrofile Group Limited.
TERMINATION OF JSE LISTING
The costs of complying with JSE regulations in the past period have exceeded the
entire market capitalisation of the company as at the date of suspension. These
costs have had to be funded by the banking consortium as no JSE regulations
exist which permit a suspension of requirements during a work-out of this
nature. This situation cannot continue in the future when control of costs at
the centre will be a high priority.
Accordingly, the company will propose to shareholders that its listing be
terminated. The company will make a cash offer to shareholders at an amount in
line with the current estimated value of MGX ordinary shares. Shareholders will
be able to remain invested if they wish. The company will continue as an
unlisted public company that will be run in accordance with sound governance
standards.
More details will be provided in the scheme circular.
RESULTS AND GOING CONCERN ASSESSMENT
The group recorded substantial losses for the year as the uncertainty at MGX
took its toll on the trading operations and substantial impairments of assets
became necessary.
The consolidated balance sheet at the reporting date does not reflect the post
balance sheet disposals and settlements that became effective after the
reporting date, nor does it reflect the effects of the proposed section 311
scheme of arrangement announced today. Similarly, the income statement
incorporates the trading results of all of the operations that have subsequently
been sold.
The consolidated balance sheet reflects an excess of liabilities over assets.
Notwithstanding this, the board is of the opinion that the group is a going
concern for the following reasons:
* On the completion of the restructure and the section 311 scheme of
arrangement, both MGX and Metrofile"s assets, fairly valued, will exceed its
liabilities or it will have debt instruments or claims subordinated to
creditors.
* Although on a consolidated basis liabilities may exceed assets the position
is reversed if the fair value of Metrofile and its property holdings are brought
to account (as will happen at subsidiary level) and the subordinations of up to
R142m
* Creditors representing in excess of 50% of the claims against MGX by value
have undertaken in writing to vote in favour of the scheme of arrangement, as
have the requisite number of shareholders to the extent required. Accordingly,
in the absence of unforeseen events, the scheme should become unconditional.
* The board have approved, and the banking consortium have accepted, the
projections for 2003/4 and for the following four years, and the banking
consortium has increased the working capital facilities available to the group.
* Written commitments have been received from SARS on various matters to the
extent necessary to persuade the banking consortium to support the restructure.
* Metrofile EBITDA is currently ahead of budget and Metrofile is generating
cash from operations.
METROFILE
Metrofile is a sound business with a strong track record. The services offered
by Metrofile include:
* Archiving, and retrieval of paper, electronic and analogue documents in
national storage centres.
* Conversion of paper to analogue or digital format through conversion
centres.
* Professional services, covering consulting, architecture and implementation
of solutions.
Metrofile achieved EBITDA of R50m in the current financial year (2002: R65m).
Return to growth is expected now that the uncertainty relating to the future of
MGX has been resolved.
Metrofile is presently negotiating an empowerment transaction with a reputable
BEE group which, if concluded, will substantially enhance the group"s prospects
in providing cost effective services to the public sector.
EC-HOLD
Although the dispute with the SRP has not yet been resolved, the extent of MGX"s
contingent liability in terms of the SRP"s ruling will be materially reduced by
the settlement with Cycad. In the opinion of MGX, very few current shareholders
of EC-Hold would qualify for an offer in terms of the ruling made by the SRP if
MGX elected to accept and abide by the ruling.
The current shareholders of EC-Hold will be made an offer of 240 cents per
share, to be settled with MGX subordinated loan notes, in terms of the section
311 scheme of arrangement, in full settlement of any claims they may have. They
may also receive an alternative cash offer from Eurevest at 20 cents per share,
if Eurevest acquires more than 35% of EC-Hold from MGX.
MGX has obtained an indemnity from Ronnie Price against claims made by any EC-
Hold shareholders that remain after these offers.
ACCOUNTING POLICIES
The accounting policies and methods of computation are in compliance with the
South African Statements of Generally Accepted Accounting Practice, and are the
same as those used for the 30 June 2002 annual financial statements, except for
the adoption of AC133.
AUDITORS REVIEW OPINION
The results have been reviewed by Messrs Deloitte & Touche whose review report
is available for inspection at the company"s offices. The report contains a
matter of emphasis with respect to going concern.
Audited financial statements are expected to be despatched to shareholders
within six weeks.
DIVIDENDS
No dividends have been declared for the current year and it is not the intention
that any dividends will be declared or paid in the foreseeable future.
FURTHER CAUTIONARY ANNOUNCEMENT
With reference to the previous cautionary announcements shareholders are advised
to continue to exercise caution in dealing in the company"s shares until further
disposal announcements have been made and the results of the scheme of
arrangement proposals are known.
PROSPECTS
On the completion of the restructuring, the group expects to generate improved
EBITDA and free cash flow. Although some of the cash flow has been earmarked
for servicing a portion of the debt obligations, sufficient will be retained to
invest in Metrofile and ensure the continued growth and development of its
business.
The ultimate creation of value for the existing shareholders of MGX will rest on
the growth and future value of Metrofile, a successful BEE transaction and the
continued support of management. The outcomes may include a combination of the
repayment of debt instruments, conversion of some of the debt instruments,
raising of additional capital in MGX and/or the retention by MGX of a smaller
but unencumbered interest in Metrofile.
APPRECIATION
The survival of the group has only been possible due to the unprecedented
support of the banking consortium. In addition the group received high quality
advice and management support from its current advisors and consultants.
Finally, and most important, the support and untiring efforts of the boards,
management and staff of MGX and Metrofile were exemplary in very trying
circumstances.
Appreciation also goes to SARS for their speed, co-operation and pragmatism
under considerable time pressure and for giving sufficient commitment in writing
for the restructure to proceed.
CONCLUSION
The restructuring of the substantial debt obligations of MGX as a result of the
determination of the banking consortium and the current board of directors has
saved thousands of jobs, preserved good businesses, allowed for orderly
disposals and optimised the outcome of a very bad situation to the benefit of
most stakeholders. We hope that one of the consequences of the resolution of
the MGX saga will be new legislation and revised JSE regulations to facilitate
American-style Chapter 11 work-outs of this nature.
Christopher Seabrooke Roy Midlane
Non-executive chairman Chief financial officer
27 November 2003
Johannesburg
Registered office:
22 Milkyway Avenue, Linbro Business Park
www.mgxgroup.com
Sponsor:
Standard Corporate and Merchant Bank, A division of The Standard Bank of South
Africa Limited
Transfer secretaries:
Computershare Limited, 70 Marshall Street, Johannesburg, 2001
Investor and media relations: contact Kathy du Plessis on Tel: (011) 728 4701,
Fax: (011) 728 2547 or e-mail: gen@dpapr.com
Directors:
CS Seabrooke*(Non-Executive Chairman), AC Ball* (Alternate E Gutierrez-Garcia*),
DE Baloyi*, SR Midlane, NJ Webster (*Non-executive)
Company Secretary:
CD du Plessis
Date: 27/11/2003 08:30:26 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
