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Mgx Holdings Limited - Unaudited Group Results For The Six Months Ended 31
Release Date: 01/04/2004 07:00:18 Code(s): MGX
MGX Holdings Limited - UNAUDITED GROUP RESULTS FOR THE SIX MONTHS ENDED 31
DECEMBER 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
("MGX")
UNAUDITED GROUP RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2003
AND FURTHER CAUTIONARY ANNOUNCEMENT
Summarised consolidated income statement
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
31 December 31 December 30 June
R"000 2003 2002 2003
Revenue 293 242 668 841 1 251 051
Operating income
before foreign
exchange
losses/(gains) 22 222 (13 202) 5 658
Foreign exchange
gains/(losses) 149 - (9 169)
Operating
income/(loss)
before
depreciation and
goodwill
amortisation
(EBITDA) 22 371 (13 202) (3 511)
Depreciation and
trademark
amortisation (20 709) (28 384) (57 829)
Operating
income/(loss)
before
goodwill
amortisation,
exceptional items
and finance costs 1 662 (41 586) (61 340)
Goodwill
amortisation (11 353) (45 802) (69 465)
Operating loss
before
exceptional
items and finance
costs (9 691) (87 388) (130 805)
Goodwill
impairment (7 500) (235 238) (331 269)
Exceptional items (1 875) (32 533) (47 343)
Operating loss
before finance
costs (19 066) (355 159) (509 417)
Net finance costs (37 849) (31 521) (78 687)
Loss before
taxation (56 915) (386 680) (588 104)
Taxation - current (6 695) (11 946) (50 364)
Deferred taxation
reversal (1 377) (62 104) (65 265)
Loss after
taxation (64 987) (460 730) (703 733)
Share of
associate"s
income - - -
Outside
shareholders"
share of losses 128 3 254 1 657
Attributable loss (64 859) (457 476) (702 076)
Number of
ordinary shares
in
issue (thousands) 74 077 74 077 74 077
Number of
ordinary shares
in treasury
(thousands) 6 877 6 877 6 877
Number of
ordinary shares
excluded
(thousands) 602 602 602
Weighted average
number of
ordinary
shares in issue
(thousands) 66 598 66 525 66 589
Headline loss per
ordinary share
(cents) (73,3) (254,0) (383 8)
Loss per ordinary
share (cents) (97,4) (687,7) (1 054,3)
Reconciliation of
headline loss
Attributable loss (64 859) (457 476) (702 076)
(Profit)/loss on
sale of property,
plant and
equipment 242 (234) 4 139
Capital
loss/(profit) on
sale of
investments (13 966) - 4 031
Amortisation and
impairment of
goodwill 18 853 281 040 400 734
Impairment of
property, plant
and
equipment 1 549 7 700 22 831
Impairment of
investments 1 700 - 11 280
Impairment of
loans receivable - - 3 513
Exceptional items
of a capital
nature 7 702 - -
Headline loss (48 779) (168 970) (255 548)
Segmental analysis
Unaudited Audited
6 months 12 months
Dis- ended ended
Continuing continuing 31 December 30 June
R"000 operations operations 2003 2003
Revenue by segment 127 891 165 351 293 242 1 251 051
Enterprise Solutions - 9 560 9 560 185 461
Business Continuity - 33 151 33 151 81 836
Content Management 118 505 78 181 196 686 440 275
Storage Solutions - 11 373 11 373 318 842
Software Development 9 386 33 086 42 472 222 925
Central Services
and other - - - 1 712
Revenue by region 127 891 165 351 293 242 1 251 051
South Africa 127 891 87 170 215 061 1 027 884
United States of
America - - - 15 971
Segmental analysis
Unaudited Audited
6 months 12 months
Dis- ended ended
Continuing continuing 31 December 30 June
R"000 operations operations 2003 2003
Revenue by
segment 127 891 165 351 293 242 1 251 051
Enterprise
Solutions - 9 560 9 560 185 461
Business
Continuity - 33 151 33 151 81 836
Content
Management 118 505 78 181 196 686 440 275
Storage
Solutions - 11 373 11 373 318 842
Software
Development 9 386 33 086 42 472 222 925
Central
Services
and other - - - 1 712
Revenue by
region 127 891 165 351 293 242 1 251 051
South Africa 127 891 87 170 215 061 1 027 884
United
States of
America - - - 15 971
Content
Management 118 505 78 181 196 686 440 275
Storage
Solutions - 11 373 11 373 318 842
Software
Development 9 386 33 086 42 472 222 925
Central
Services
and other - - - 1 712
Revenue by
region 127 891 165 351 293 242 1 251 051
South Africa 127 891 87 170 215 061 1 027 884
United
States of
America - - - 15 971
United
Kingdom - 78 181 78 181 207 196
EBITDA by
segment 28 878 (6 507) 22 371 (3 511)
Enterprise
Solutions - (803) (803) (11 770)
Business
Continuity - 6 565 6 565 11 693
Content
Management 37 083 8 991 46 074 71 457
Storage
Solutions - (3 599) (3 599) (8 091)
Software
Development (2 271) (3 4 46) (5 717) (31 263)
Central
Services
and
other (5 934) (14 2 15) (20 149) (35 537)
EBITDA by
region 28 878 (6 50 7) 22 371 (3 511)
South Africa 28 878 (15 568) 13 310 976
United
States of
America - - - (22 197)
United
Kingdom - 9 061 9 061 17 170
The following entities are included under Discontinuing operations - having
been sold or are in the process of being sold:
Enterprise Solutions, Storage Solutions, Business Continuity Solutions,
Software Futures, Dions Business Systems, MGX Property and Graphic Data
Summarised consolidated balance sheet
Unaudited Unaudited Audited
as at as at as at
31 December 31 December 30 June
R"000 Note 2003 2002 2003
ASSETS
Non-current assets 292 469 537 138 435 222
Property, plant and equipment 287 373 364 272 333 291
Financial assets - 19 708 16 700
Goodwill 4 998 153 050 84 982
Intangibles 98 108 103
Long-term receivables - - 146
Deferred taxation asset 679 10 481 2 931
Current assets 105 161 388 122 359 831
Inventories 10 874 56 500 44 025
Trade receivables 65 875 249 412 181 420
Other receivables 18 337 54 376 46 516
Taxation - - 3 639
Bank balances 10 075 27 834 84 231
Total assets 398 309 935 741 797 984
EQUITY AND LIABILITIES
Equity capital and reserves (273 882) 44 342 (208 857)
Ordinary shareholders" interest (304 071) 10 804 (240 691)
Outside shareholders" interest 1 756 5 105 3 401
Outside shareholders" preference
shares in subsidiary 28 433 28 433 28 433
Deferred taxation liability 1 627 - 738
Non-current liabilities 458 511 172 107 169 075
Non-interest-bearing liabilities - 4 295 -
Interest-bearing liabilities 1 458 511 167 812 169 075
Current liabilities 212 053 719 292 837 028
Trade payables 28 960 95 004 102 178
Other payables 55 147 167 100 124 979
Deferred revenue 5 618 59 630 53 935
Taxation 46 799 21 788 54 188
Bank overdrafts 27 207 75 551 161 082
Non-interest-bearing liabilities - 37 201 73 477
Interest-bearing liabilities 48 322 263 018 267 189
Total equity and liabilities 398 309 935 741 797 984
Notes:
1 Long-term interest bearing liabilities comprise long-term liabilities plus
those liabilities converted into loan notes or long-term facilities in terms
of the CTA signed with the capital providers and in terms of the subsequent
Court sanctioned Section 311 scheme of arrangement, but prior to accounting
for the remaining sales of assets in progress
Summarised consolidated cash flow statement
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
31 December 31 December 30 June
R"000 2003 2002 2003
CASH FLOWS FROM
OPERATING ACTIVITIES
Cash generated from/(utilised by)
operations
18 198 (13 436) (1 297)
before net working capital changes
Increase in net working capital 28 415 47 719 81 192
Cash generated from operations 46 613 34 283 79 895
Net finance costs (37 849) (31 521) (78 687)
Normal taxation paid (931) (1 150) (7 288)
Net cash inflow/(outflow) from
operating activities 7 833 1 612 (6 080)
Net cash inflow/(outflow) from
investing activities 9 945 (79 802) (85 622)
Net cash inflow from
financing activities 41 779 67 830 50 398
Net increase/(decrease) in
cash and cash equivalents 59 557 (10 360) (41 304)
operating activities 7 833 1 612 (6 080)
Net cash inflow/(outflow) from
investing activities 9 945 (79 802) (85 622)
Net cash inflow from
financing activities 76 043 67 830 50 398
Net increase/(decrease) in
cash and cash equivalents 93 821 (10 360) (41 304)
Cash and cash equivalents
at the beginning of the year (76 851) (37 357) (37 357)
Translation difference on
opening cash position 162 - 1 810
Cash and cash equivalents
at the end of the year (17 132) (47 717) (76 851)
Bank balances 10 075 27 834 84 231
Bank overdrafts (27 702) (75 551) (161 082)
Statement of changes in equity
Non- Distri-
Share Share distributable butable
R"000 capital premium reserves reserves Total
Balance at
31 December 2002 407 194 862 10 502 (194 967) 10 804
Attributable loss - - - (244 600) (244 600)
Change in Accounting
Policy in adopting
AC 133 - - - (1 861) (1 861)
Foreign currency
reserve - - (5 835) - (5 835)
Offset of treasury
shares - 852 - - 852
Impairment of share
incentive trust 2 (53) - - (51)
Balance at
30 June 2003 409 195 661 4 667 (441 428) (240 691)
Attributable
earnings - - - (64 859) (64 859)
Foreign currency
reserve - - 1 479 - 1 479
Balance at
31 December 2003 409 195 661 6 146 (506 287) (304 071)
COMMENTARY ON RESULTS
The Period in Retrospect
During the period under review, a consortium of the group"s bankers, and other
capital providers, made additional working capital facilities available and
signed the Common Terms Agreement (CTA) for the restructuring of the group"s
debt These facilities were conditional on a compromise proposed by the company
with certain of its creditors, in terms of Section 311 of the Companies Act
The compromise wa subsequent to the reporting date, approved by the required
majority of creditors and sanctioned by the High Court on 2 March 2004 It is
accordingly unconditional The CTA is thus also unconditional
As previously reported, the group disposed of Business Continuity Solutions,
Enterprise Solutions, Storage Solutions, Software Futures, Drive Control and
its Linbro and Faerie Glen properties The financial effects of all the
disposals, with the exception of the Linbro property sale have been accounted
for during this period The group is in the process of disposing of Graphic
Data, EC-Hold, and the Midrand property
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 Securities Exchange South Africa ("JSE") Listing
The costs of complying with the JSE Listing Requirements in 2003 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
Accordingly, the company will propose to shareholders that its listing be
terminated A cash offer to shareholders will be made at a nominal level, in
line with the current estimated value of the ordinary shares, but shareholders
will be able to remain invested if they wish The company will continue as an
unlisted public company managed in accordance with sound corporate governance
standards
Results
Results for the period are not strictly comparable with those of the prior
periods due to the businesses and assets sold during the relevant reporting
periods
Nevertheless it is pleasing to note the improved EBITDA and the reduction in
losses per share
The balance sheet will remain difficult to assess until the remaining disposals
and the effects of the CTA are accounted for In addition, Metrofile is not
reflected at its estimated fair market value in the
consolidated balance sheet
Going Concern Assessment
The income statement for the period incorporates the trading results of
ongoing operations and also of many of the operations that have been sold
during the period Assets of R192 8 million and liabilities of R219 3 million
in the consolidated balance sheet at the reporting date relate to operations
or entities discontinued or sold, subject to shareholders confirmation All
interest accruals have been accounted for irrespective of whether payment of
interest has been in cash or deferred In addition the consolidated balance
sheet at the reporting date does not reflect the effects of the Section 311
compromise which was approved and became unconditional after the reporting
date
The consolidated balance sheet reflects, at the reporting date, 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:
Although on a consolidated basis liabilities exceed assets, the fair value of
MGX assets exceeds the fair value of MGX liabilities, if the subordinated
liabilities are excluded from the liabilities in the balance sheet
Subsequent to the reporting date, the Section 311 compromise was approved by
the creditors and sanctioned by the court and thus is unconditional
The Common Terms Agreement with the banking consortium is unconditional and
the working capital facilities available to the group have been increased The
current year "s budget indicates that the group has adequate working capital to
support its operational requirements and service all costs associated with the
restructuring of the group
Metrofile is currently trading profitably, ahead of budget and generating
free cash flow
The group has concluded sale agreements for all of it"s remaining material
assets other than Metrofile, which if approved by shareholders, will
materially reduce the group"s liabilities
Although SARS has raised a number of queries concerning tax matters within
the group, SARS undertook in writing not to oppose the compromise and agreed to
a rescheduling of current exposures
This going concern assessment has been made on the assumption that current
provisions are adequate and other matters are satisfactorily resolved with SARS
in due course
Contingencies
The following material changes have accrued to the group"s contingent
liabilities reported at the end of June 2003
Cycad Financial Holdings Limited - The claims by and against MGX have been
settled for a payment by MGX of R7 5 million
Labour Actions - The Labour Appeal Court gave judgement in favour of the
trade union against Metrofile in respect of the 1998 strike action The
judgement is being appealed An amount of
R4 9 million has been provided for in the financial statements If this
appeal fails a further liability of up to R5 million could be incured
Taxation - SARS has various queries outstanding of approximately R100
million in aggregate
The group believes that adequate provisions have been made in the financial
statements for all known agreed amounts Discussions are in progress with SARS
relating to other queries raised At this stage the company and its tax
advisors do not believe it is necessary to raise any additional provisions
EC-Hold Support
MGX has increased its subordinated loan to EC-Hold to R14 million, subject to
certain conditions
Commitments
* Lease of computer equipment - R4 7 million payable over the next five years
* Rental commitments for the next +/- 3 years, amounting to R0 9 million
* No material capital commitments exist in the group
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 2003 annual financial statements
Dividends
No dividends have been declared for the current period 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 and an announcement relating to the
possible delisting of the company have been made For the time being the
company"s listing on the JSE remains suspended
Board and Management
Eduardo Gutierrez-Garcia joined the board on 1 February 2004 and Antony Ball
resigned from the board on 1 February 2004 Norman Webster has given notice
that he intends to resign as a director of MGX with effect from 30 June 2004,
but will continue as a non-executive director of Metrofile Graham Wackrill who
has been appointed CEO of Metrofile, was appointed as an alternate director to
Norman Webster on the MGX board with effect from 1 February 2004 and will be
appointed as an executive director with effect from 30 June 2004
Prospects
The disposal of all the material assets of the MGX group, other than Metrofile,
will be completed within the next few months with a concomitant reduction in
liabilities and debt service obligations The group"s head office has been
significantly rationalised and further cost reduction plans anticipated to be
implemented over the next few months will materially reduce costs to be
serviced at the centre Metrofile is trading well and this should be further
enhanced by the introduction of BEE shareholders to partner the Metrofile group
in its future endeavours
Metrofile expects to generate improved EBITDA and free cash flow Although some
of the cash flow has been earmarked for servicing and repaying a portion of the
group"s remaining debt obligations, sufficient funds 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 and for the
convertible note holders in MGX and Metrofile (to the extent these are not
repaid or refinanced) depends on the growth in future value of Metrofile
Conclusion
MGX and Metrofile are now able to operate in a stable environment largely
due to the considerable efforts and pragmatism of the banking consortium and
capital providers, the continued support of the major shareholders and the
dedication and commitment of management The group"s other businesses and
assets have been disposed of in an orderly fashion and the potential outcome
for all stakeholders (and convertible/redeemable loan note holders and
shareholders in particular) has been optimised
CHRISTOPHER SEABROOKE ROY MIDLANE
(NON-EXECUTIVE CHAIRMAN) (CHIEF FINANCIAL OFFICER)
31 March 2004
Johannesburg
to R5 million could be incurred
Registered office: MGX House, 22 Milkyway Avenue, Linbro Business Park
Registration Number: 1983/012697/06 www mgxgroup com Sponsor: The Standard
Bank of South Africa Limited.
Limited Transfer secretaries: Computershare Limited, 70 Marshall Street,
Johannesburg, 2001 Directors: CS Seabrooke*(Non-Executive Chairman), E
Gutierrez-Garcia, DE Baloyi*, SR Midlane, NJ Webster (*Non-executive) Company
Secretary: CD du Plessis
Sponsor
The Standard Bank of South Africa Limited.
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