| Tue 24 Feb 2004, 8:32 | | RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2003 |
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INTERVID LIMITED - INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2003
Intervid Limited
Registration Number: 1999/011483/06
JSE Share Code: ITV
ISIN: ZAE000025615
INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2003
- Operating loss reduced by 42.6% to a loss of R16,8 million
(2002: R29,3 million)
- Headline loss per share improved by 17.1% to 19,1 cents (2002: 23,0 cents)
- Cash outflow from operating activities improved by 59.7%
CONSOLIDATED
BALANCE SHEET 31 December 31 December 30 June
2003 2002 2003
(Reviewed) (Reviewed) (Audited)
R"000 R"000 R"000
ASSETS
Non-current assets 105 300 161 382 114 459
Property, plant and equipment 35 147 39 780 33 878
Loans to share trusts 1 569 4 865 1 854
Long-term receivables 1 528 172 2 111
Goodwill 45 166 77 268 52 172
Intangibles 7 772 17 369 9 602
Deferred tax asset 14 118 21 928 14 842
Current assets 221 623 501 090 286 657
Inventories 36 965 66 782 48 136
Contracts in progress 4 856 2 030 7 860
Trade and other receivables 84 073 132 698 58 969
Taxation 1 253 2 198 1 112
Cash and cash equivalents 94 476 297 382 170 580
TOTAL ASSETS 326 923 662 472 401 116
EQUITY AND LIABILITIES
Capital and reserves 192 136 409 444 236 077
Share capital and premium 28 883 27 189 28 883
Non-distributable reserve 454 454 454
Foreign currency translation reserve (30 808) 29 272 (6 624)
Equity portion of convertible loan 394 121 394 121 394 121
Accumulated loss (200 514) (41 592) (180 757)
Minority shareholders" interest 57 57 57
Non-current liabilities 24 736 31 430 25 635
Deferred tax liability 2 506 6 899 3 294
Long-term liabilities:
interest bearing 5 894 19 135 3 162
Long-term liabilities:
non-interest bearing 16 336 5 396 19 179
Current liabilities 109 994 221 541 139 347
Short-term borrowings 17 660 85 661 48 310
Trade and other payables 80 158 118 313 82 403
Taxation 4 489 11 765 907
Provisions 7 687 5 802 7 727
TOTAL EQUITY AND LIABILITIES 326 923 662 472 401 116
Number of ordinary shares in issue
at end of period 93 000 92 920 93 000
Net asset value per ordinary
share - cents 207 441 254
CONSOLIDATED INCOME STATEMENT
6 months 6 months 12 months
ended ended ended
31 December 31 December 30 June
2003 2002 2003
(Reviewed) (Reviewed) (Audited)
R"000 R"000 R"000
Gross revenue 141 975 282 651 454 753
Turnover 140 666 277 956 446 181
Interest received 1 309 4 695 8 572
Operating loss from operating activities
before forex gains, depreciation,
impairments, amortisation, interest
received, interest paid and taxation (16 816) (29 300) (107 238)
Foreign exchange gains 12 811 10 541 24 788
Depreciation (5 071) (5 378) (12 025)
Fixed asset - - (9 424)
Intangibles amortisation (3 683) (3 627) (5 376)
Intangibles impairment - - (8 710)
Goodwill amortisation (4 810) (13 292) 17 732)
Goodwill impairment - - (43 358)
Loss before interest (17 569) (41 056) (179 075)
Interest received 1 309 4 695 8 572
Interest paid (2 205) (3 081) (3 948)
Loss before taxation (18 465) (39 442) (174 451)
Taxation (1 292) 3 148 (1 008)
Loss after taxation (19 757) (36 294) (175 459)
Net loss attributable to minority
shareholders of subsidiaries - 1 -
Net loss for the period (19 757) (36 293) (175 459)
Weighted average number of
shares in issue 93 000 92 466 92 711
Loss per share - cents (21.2) (39.3) (189.3)
Headline loss per share - cents (19.1) (23.0) (123.5)
Diluted loss per share - cents (21.2) (39.3) (189.3)
Reconciliation of headline loss:
Net loss for the period (19 757) (36 293) (175 459)
Impairment of assets - 89 12 694
Impairment of goodwill - - 43 358
(Profit)/loss on sale of
plant and equipment (2 772) 1 660 (12 822)
Goodwill amortisation 4 810 13 292 17 732
Headline loss (17 719) (21 252) (114 497)
ABRIDGED CONSOLIDATED CASHFLOW
6 months 6 months 12 months
ended ended ended
31 December 31 December 30 June
2003 2002 2003
(Reviewed) (Reviewed) (Audited)
R"000 R"000 R"000
Net cash flows from
operating activities (32 554) (80 754) (144 734)
Net cash flows from
investing activities (5 770) (18 182) (41 892)
Net cash flows from
financing activities (17 517) (11 668) (35 460)
Cash flows for the period
before the effect of exchange
rate movements (55 841) (110 604) (222 086)
Effect of exchange rate movement (8 957) (55 316) (72 278)
Cash and cash equivalents
at beginning of period 150 146 444 510 444 510
Cash and cash equivalents
at end of period 85 348 278 590 150 146
CHANGES IN GROUP EQUITY
6 months 6 months 12 months
ended ended ended
31 December 31 December 30 June
2003 2002 2003
(Reviewed) (Reviewed) (Audited)
R"000 R"000 R"000
Opening balance 236 077 518 323 518 323
Issue of shares - - 1 694
Foreign currency translation reserve (24 184) (72 586) (108 481)
Net loss for the period (19 757) (36 293) (175 459)
Closing balance 192 136 409 444 236 077
Segmental Report
For the six months ended Inter-segment
31 December 2003 consolidation
(Reviewed) Consolidated adjustments Africa
R"000 R"000 R"000 R"000
Revenue 140 666 (8 704) 39 945
EBITDA (4 004) (990) 1 056
EBIT (17 569) 4 911 (2 196)
Segment assets 311 552 (153 108) 67 283
Segment liabilities (127 735) (52 378) (43 930)
Capital committments
- contracted for
- not contracted for
For the six months ended
31 December 2003 Austra- North Middle
(Reviewed) lasia Europe America East
R"000 R"000 R"000 R"000 R"000
Revenue 6 670 75 856 22 601 4 298
EBITDA (1 843) 8 081 (11 242) 934
EBIT (2 032) (5 125) (13 031) (96)
Segment assets 10 103 340 638 33 804 12 832
Segment liabilities (2 807) (12 379) (15 108) (1 133)
Capital committments
- contracted for
- not contracted for
For the six months ended Inter-segment
31 December 2002 consolidation
(Reviewed) Consolidated adjustments Africa
R"000 R"000 R"000 R"000
Revenue 277 956 (37 446) 63 264
EBITDA (18 759) 656 5 882
EBIT (27 763) (3 609) 820
Segment assets 640 544 (188 160) 92 709
Segment liabilities (246 073) (9 746) (71 233)
Capital committments
contracted for 1 032
not contracted for
For the six months ended
31 December 2002 Austra- North Middle
(Reviewed) lasia Europe America East
R"000 R"000 R"000 R"000 R"000
Revenue 11 097 211 881 27 229 1 931
EBITDA (342) (5 039) (17 064) (2 852)
EBIT (596) (3 183) (17 814) (3 381)
Segment assets 14 767 659 254 51 190 10 784
Segment liabilities (1 722) (143 908) (18 375) (1 089)
Capital committments
contracted for 1 032
not contracted for
Notes
1. Basis Of Preparation
This report has been prepared on the historical cost basis in accordance
with South African Statements of Generally Accepted Accounting Practice.
2. Accounting Policies
Accounting policies used in the preparation of the interim report are
consistent with those applied in the annual financial statements dated
30 June 2003. This interim financial report complies in all material
respects with AC 127 Interim Financial Reporting.
3. Change In Estimate
The maximum period over which capitalised development costs are amortised
has been reduced to one year from five years. We are of the opinion that
the reduced period more accurately reflects the useful life of capitalised
development costs. The charge for the current period amounted to R3,007
million including a further catch-up charge of R2,290 million.
4. Headline Earnings
Headline earnings have been calculated in accordance with Circular 7 issued
in December 2002.
5. Dividends
No dividend has been recommended or declared for the half year ended
31 December 2003.
6. Contingent Liabilities
Changes to contingent liabilities since 30 June 2003 are reflected below:
* The guarantee relating to repurchases should customers default on
payment has been reduced from R1 577 409 as at June 2003 to R1 139
450.
* The guarantees relating to security for work performed in terms or
contracts with customers has increased from R6 373 415 to R6 671 665.
Commentary
INTRODUCTION
Intervid Limited ("Intervid") operates in the UK, USA, Africa, Australia and the
Middle East as a provider of integrated solutions in the electronic security and
business process monitoring industry.
The group consists of two businesses:
* Regional Systems Integrators (RSIs), which install and maintain video
surveillance, access control, monitoring and electronic article
surveillance systems, and
* Technologies, which develops integrated solutions and distributes its
proprietary hardware and software products to Intervid"s RSIs as well as
third party systems integrators.
PERIOD UNDER REVIEW
In the period under review, management focused on a `back to basics" strategy to
turn the company around. The RSIs and Technologies have been granted greater
autonomy and are being held more accountable through stricter governance. Group
Services, which provides head office and central services to Technologies and
the RSIs, has been cut back dramatically.
Intervid"s turnaround strategy focuses around five key initiatives, namely cash,
costs, quality contributing revenue, compensation review, and communication.
Cash preservation has been paramount in this period. In particular, we have
begun to focus on improving working capital management. Although this has
improved, our debtors are still unsatisfactorily high. Business that has proved
unprofitable in the past has consciously been turned away in favour of quality
contributing revenue that improves operating margin and the company"s bottom
line. Tough decisions have been implemented to reduce costs to more
appropriately fit our gross margin, and this will remain an ongoing process. We
are reviewing our compensation practice to align it with performance against our
strategic objectives. Underpinning our turnaround programme is constant
communication to our stakeholders.
While we are satisfied that our results, especially the relative improvement in
operating loss and cash usage, show that the turnaround is progressing according
to plan, there are still challenges ahead before we will be able to achieve
sustainable cash generation.
The current shareholder disagreement and resultant pressure from Intervid"s
financiers, outlined below, is likely to jeopardise the current turnaround
programme.
FINANCIAL OVERVIEW
During the six months under review, turnover dropped by 49.4% from R278,0
million in the corresponding six months to R140,7 million. This was due to a
conscious decision to focus on better quality revenue at higher target margins
and increased competition. As more than 70% of Intervid"s turnover is
denominated in foreign currencies, the strength of the Rand had an impact on the
business.
When measured in US Dollar terms, revenue was therefore 36.8% down in constant
currency terms. Due to the global nature of the business and US Dollars being
the measurement currency of Intervid International AG, management is inclined to
monitor the business in US Dollars.
Notwithstanding lower turnover, Intervid"s operating loss for the period
improved significantly, reflecting the focus on quality revenue. The operating
loss declined by 42.6% to a loss of R16,8 million compared with a loss of R29,3
million for the corresponding six months. This is due to an improvement in gross
margin and a reduction in overheads.
As a result of Intervid"s focus on the turnaround programme, net loss showed a
45.6% reduction and headline loss per share improved to 19,1 cents (2002: 23.0
cents) compared with the corresponding six months. Headline loss reduced by only
17.1% due to a 63% drop in goodwill amortisation to R4,8 million (2002: R13,3
million) as a result of a R43,4 million goodwill impairment as at June 2003.
This has an impact because amortisation is added back when calculating the
headline loss.
The net cash outflow from operating activities amounted to R32.6 million, 59.7%
better than the corresponding period"s outflow of R80,8 million. This was due to
management"s focus on cash management and we have begun to focus on the working
capital cycle. It is clear that work still needs to be done in reducing the
level of debtors.
Foreign exchange gains on cash holdings increased from R10,5 million to R12,8
million in this period due to the strengthening of the Euro against the US
Dollar because most of Intervid"s offshore funds are held in Euros.
The foreign currency translation reserve has decreased by R52,1 million to end
the period at a debit value of R30,8 million. This movement was due to the
weakening of the US Dollar, the measurement currency of Intervid International
AG.
Net Asset Value per share decreased to 207 cents (2002: 441 cents) due to the
losses in the current and prior years and the reduction in the foreign currency
translation reserve. Attention is drawn to note 24 on page 63 of the June 2003
annual report that details the substantial dilutionary effect of the
compulsorily convertible loan which could result in RFS Holdings Limited ("RFS")
taking ownership of 90% of the shareholding of Intervid Limited after the
issuing of new shares after the end of June 2005. Furthermore, the loan from
VenFin Limited ("VenFin"), which is referred to below, may have a dilutionary
effect.
OPERATIONAL OVERVIEW
Europe, including the UK
The focus during the period under review was on quality contributing revenue and
the cessation of centralised distribution which was not cost-effective. The UK
operation, which is a strong player in the leisure and retail markets, has been
rationalised through a reduction in headcount and the conversion of fixed costs
into variable costs. This has substantially reduced the breakeven level of
turnover. These actions had a positive effect on EBITDA, which now reflects a
profit. Prospects are sound for the continued turnaround of this business.
North America
Although the business has been restructured and headcount reduced, the operation
is still incurring unacceptably high losses with corresponding cash usage. The
strategic importance of this business is being evaluated and management is
focusing on achieving profitability and generating cash on a monthly basis.
Africa
As Africa is our home territory, this region was affected the most by the
upheavals of management changes and poor results in the last year. The local
management team focused strongly on addressing client concerns but the
uncertainty did affect new business inflows. This business made a small loss.
Middle East
Financial performance strengthened with increased turnover due to the continued
improvement in the rental business from blue-chip customers and an increase in
the value of capital transactions. This reflects the improvement in customer
relationships over the recent past. The business was profitable at the EBITDA
level, while showing a small loss at the EBIT level.
Australia
Sales dropped off considerably due to management focus being mainly on
addressing legacy problems in existing client installations and because of
increased competition. Towards the end of the current period, customer
satisfaction improved considerably and management has again started to focus on
sales. In the meantime, the business has been rationalised to ensure it remains
self-supporting from a cash perspective. It made a small loss at the EBIT level.
Technologies
This business is no longer confined to selling only to the Intervid RSIs and it
has started to achieve some success in expanding its customer base beyond
Intervid. Considerable investment has been made in improving the product. It
made a small loss at the EBIT level and management is focusing on both
clarifying the strategic role of this business and ensuring an improved
financial performance.
Group Services
Headcount has more than halved since the corresponding six months. Mike
Gomersall, who has over ten years of related IT experience, has been appointed
COO to drive efficiencies and optimise market opportunities.
CAPITALISATION AND SHAREHOLDER DISAGREEMENT
During the last six months, the Intervid board has endeavoured to secure the
recapitalisation of the South African entities (the RSI, Technologies and Group
Services). The board has been in negotiations with its major loan creditor, RFS
Holdings Limited ("RFS"), regarding both the capping of the number of shares
that may have to be issued to RFS when the current loan is converted into
shares, and the continued access to funding in South Africa from Intervid
International AG.
The board has also been in negotiations with one of its shareholders, VenFin,
regarding the underwriting of a rights issue. Other financing alternatives and
underwriters have also been pursued, but without success. These negotiations
with VenFin have been frustrated by the recent shareholder disagreement because
certain shareholders comprising the Howard Family have called a general meeting
for today to propose the reconstitution of the board. VenFin has advised that it
is opposed to this course of action.
Details of the shareholder disagreements were released on SENS on 4 February
2004 and 6 February 2004 respectively.
The Intervid board was informed on Saturday, 21 February 2004, that the major
shareholders have failed to resolve their disagreement in respect of the
recapitalisation of Intervid and the reconstitution of the board. The major
shareholders comprise the Howard Family Trust, the James Howard Family Trust,
the Kate Howard Family Trust ("the Howard Family"), the Le Sueur Family Trust
("the Le Sueur Family") and VenFin.
However, in an effort to ensure that Intervid has continued access to funding,
Intervid signed a loan agreement with VenFin on 21 February 2004 as follows:
VenFin will advance a loan of not less than R21 million and not more than R40
million to Intervid ("the VenFin Loan"). The exact amount will be determined
once a full evaluation of the business" financial needs has been carried out.
The VenFin Loan will be advanced on the same terms as those applicable to
Intervid"s current overdraft facilities, save that in 12 months the outstanding
portion of the loan may be convertible (at the option of VenFin) into Intervid
shares. The conversion may be effected at a price of R0,40 per Intervid share.
This will more appropriately recapitalise Intervid.
The granting of the VenFin Loan is subject to a number of suspensive conditions:
* The most immediate condition is that the general meeting to be held at
11h00 today be withdrawn by the Howard Family.
* The board should also appoint the Howard Family"s suggested board members,
Messrs Richard Evans and George O"Reilly, as directors,
* Intervid shareholders should approve the specific issue of shares for cash
that may result from the conversion of the VenFin Loan into shares,
* Intervid shareholders should waive any rights they may have to an offer for
their Intervid shares should the conversion of the VenFin Loan result in an
affected transaction.
A circular containing comprehensive information about the VenFin Loan and the
conditions relating to its conversion will be sent to shareholders together with
a notice convening a general meeting to vote on the relevant resolutions.
However, at the time of submitting this announcement to the our sponsors for
release, it appeared highly unlikely that the general meeting would be
withdrawn, thereby not fulfilling a condition of the VenFin Loan agreement. This
will give VenFin the right to withdraw from the loan agreement. A SENS
announcement will be released as soon as possible after the general meeting to
advise shareholders of its outcome.
INTERVID INTERNATIONAL AG
Intervid International AG holds Intervid"s international RSIs in North America,
the United Kingdom, the Middle East and Australia. Intervid International AG is
wholly owned by Intervid Limited, although this holding is subject to certain
conversion rights in favour of RFS Holdings Limited, the principal loan creditor
of Intervid International AG. Intervid International AG is separately
capitalised, and it has US$9 million at its disposal to invest in the
international RSIs. These resources are available to fund the existing
turnaround and, once that has been achieved, to grow the regional businesses in
a controlled manner.
GOING CONCERN
The directors have taken the following factors into account in assessing
Intervid"s ability to represent a going concern for the 12 months from 1 January
2004:
Operational
The net loss and cash usage for the six months to 31 December 2003 have been
substantially reduced compared with the prior corresponding six months. This
trend is expected to continue into the second six months. The turnaround
programme is progressing according to plan.
Forecasts reflect slightly greater than budgeted cash usage. This is being
addressed through a thorough strategic review of the businesses where this is
occurring and the causes of this leakage are being addressed through further
cost cuts and tighter working capital management.
Funding Source
The South African operations are dependent on the overdraft facilities provided
by Intervid"s local bankers. Our bankers have recently required either an
appropriate capitalisation of the operations which would justify the
continuation of their lending facilities or, alternatively, appropriate security
which reduces their lending risk to an acceptable level. This requirement has
been prompted by the call for the general meeting of shareholders on 23 February
2004 to consider proposed changes to the board of Intervid. The bankers are
concerned that this will divert the attention of management from the turnaround
initiatives and potentially diminish the success of these initiatives.
RFS Holdings has indicated that should the proposed changes to the board be
effected, it will not allow funds to flow into South Africa.
As no shareholder agreement on the recapitalisation and board issues has been
achieved, the continued funding of Intervid has been jeopardised, casting doubt
on the business as a going concern.
DIRECTORATE
At the annual general meeting held on 4 November 2003, Messrs Jannie Durand and
Alan Grieve retired from the board due to a potential conflict of interest. They
did not make themselves available for re-election.
Mr Johann Pieterse resigned from the board this morning with immediate effect.
OUTLOOK
Intervid"s overhead structure is at more acceptable levels and the results for
the period under review show a positive trend. However, there is still a tough
road ahead. As indicated in our June 2003 annual results, a further loss for the
year ending June 2004 is expected, although substantially less than that of
2003.
Industry prospects are attractive. To tap into these opportunities, management
will continue to focus on its core turnaround principles of prudent financial
management and operational efficiencies. In addition to its general offering,
Intervid will continue to differentiate itself in selected vertical markets such
as leisure, retail and mining through its ability to craft customer-centric
solutions.
However, the failure to resolve the current shareholder disagreement will place
pressure on the business to maintain its current turnaround momentum.
For and on behalf of the board
M J G Taylor (CEO)
W D Jaggard (CFO)
23 February 2004
REVIEW REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF INTERVID LIMITED
We have reviewed the condensed consolidated balance sheet of Intervid Limited
and its subsidiaries at 31 December 2003, and the related condensed consolidated
statements of income and cash flows for the six months then ended. The condensed
consolidated interim financial statements are the responsibility of the
company"s directors. Our responsibility is to issue a report on the condensed
consolidated interim financial statements based on our review.
Scope
We conducted our review in accordance with the statement of South African
Auditing Standards applicable to review engagements. This standard requires that
we plan and perform the review to obtain moderate assurance that the condensed
consolidated interim financial statements are free of material misstatement. A
review is limited primarily to enquiries of company personnel and analytical
procedures applied to financial data and thus provides less assurance than an
audit. We have not performed an audit and, accordingly, we do not express an
audit opinion.
Going Concern
Our review was carried out on the basis that in order for the group to remain as
a going concern it was dependent on the following:
* its ability to meet its budgeted cash flows for the twelve months to
December 2004, and
* the continued support of its bankers and financiers.
Since the directors approved the interim results for the six months to December
2003 a special general meeting has taken place and there have been changes to
the board of directors, which we believe will be the subject of a separate
announcement. It is too soon to assess what impact these changes, and any
actions that the newly constituted board of directors could take, will have on
the achievement of the budgeted cash flows and the continued support of the
bankers and financiers, and in particular whether the bankers will grant an
extension of time to meet their requirements as detailed in the commentary to
the results.
These factors could affect the ability of the group to remain as a going
concern.
Qualified Review Opinion
Based on our review, except for the effects of the significant uncertainties
regarding going concern noted in the previous paragraphs, nothing has come to
our attention that causes us to believe that the condensed consolidated interim
financial statements are not fairly presented, in all material respects, in
accordance with the South African Statement of Generally Accepted Accounting
Practice applicable to Interim Financial Reporting and the Companies Act in
South Africa.
Ernst & Young
Durban
23 February 2004
Registered Office:
6 Charles Way,
Kloof, 3610,
PO Box 1218, Kloof, 3640
Transfer Secretaries:
Computershare Limited,
70 Marshall Street,
Johannesburg, 2001,
PO Box 1053, Johannesburg, 2000
Directors:
W.F. Lambert * (Chairman), G.R. Howard* (Deputy Chairman), J.R. Howard,
W.D. Jaggard (CFO), J.M. Pieterse*, M.J.G Taylor (CEO)
* Non-Executive
SPONSOR:
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
CORPORATE FINANCE
Date: 24/02/2004 08:10:16 AM Produced by the JSE SENS Department
