| Thu 28 Oct 2004, 17:53 | | MGX - REVIEWED GROUP RESULTS FOR THE YEAR ENDED 30 |
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MGX - REVIEWED GROUP RESULTS FOR THE YEAR ENDED 30 JUNE 2004
MGX Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1983/012697/06)
Share code: MGX ISIN: ZAE000009262
(`MGX` or `the company` or `the group`)
REVIEWED GROUP RESULTS FOR THE YEAR ENDED 30 JUNE 2004
SUMMARISED CONSOLIDATED INCOME STATEMENT
Reviewed Audited
12 months 12 months
ended ended
30 June 30 June
R`000 2004 2003
Revenue 473 803 1 251 051
Operating income before foreign exchange
gains/(losses) 44 969 5 658
Foreign exchange gains/(losses) 226 (9 169)
Operating income/(loss) before depreciation
and goodwill amortisation (EBITDA) 45 195 (3 511)
Depreciation (33 405) (57 829)
Goodwill amortisation (14 688) (69 465)
Goodwill impairment (7 500) (331 269)
Exceptional items 16 492 (47 343)
Operating profit/(loss) before finance costs 6 094 (509 417)
Net finance costs (68 972) (78 687)
Loss before taxation (62 878) (588 104)
Normal taxation (20 227) (50 364)
Deferred taxation (3 279) (65 265)
Loss after taxation (86 384) (703 733)
Outside shareholders` share of (profits)/losses (826) 1 657
Attributable loss (87 210) (702 076)
Number of ordinary shares in issue (thousands) 74 077 74 077
Number of ordinary shares in treasury (thousands) 6 877 6 877
Number of ordinary shares excluded (thousands) - 602
Number of ordinary shares in issue after deducting
treasury and other excluded shares (thousands) 67 200 66 598
Weighted average number of ordinary
shares in issue (thousands) 67 200 66 589
Headline loss per ordinary share (cents) (132,3) (383,8)
Diluted headline loss per ordinary share (cents) (17,9) -
Loss per ordinary share (cents) (129,8) (1 054,3)
Diluted loss per ordinary share (cents) (17,6) -
Reconciliation of headline loss
Attributable loss (87 210) (702 076)
(Profit)/loss on sale of property,
plant and equipment (301) 4 139
Capital (profit)/loss on sale of subsidiaries (27 017) 4 031
Amortisation and impairment of goodwill 22 188 400 734
Impairment of property, plant and equipment 1 718 22 831
Impairment of associate 1 700 11 280
Impairment of loans receivable - 3 513
Headline loss (88 923) (255 548)
SUMMARISED CONSOLIDATED BALANCE SHEET
Reviewed Audited
at at
30 June 30 June
R`000 Notes 2004 2003
ASSETS
Non-current assets 141 264 435 222
Property, plant and equipment 141 264 333 291
Financial assets - 16 700
Goodwill - 84 982
Intangibles - 103
Long-term receivables - 146
Deferred taxation asset - 2 931
Current assets 101 248 359 831
Inventories 8 309 44 025
Trade receivables 39 572 181 420
Other receivables 5 375 46 516
Property in process of sale 35 000 -
Taxation 719 3 639
Bank balances 12 273 84 231
Total assets 242 512 797 984
EQUITY AND LIABILITIES
Equity capital and reserves (327 360) (208 857)
Ordinary shareholders` interest (327 801) (240 691)
Outside shareholders` interest 441 3 401
Outside shareholders` preference
shares in subsidiary - 28 433
Deferred taxation liability 2 134 738
Non-current liabilities 466 156 169 075
Provisions 1 47 867 -
Interest bearing subordinated redeemable
convertible loans 2 167 155 -
Interest bearing liabilities 3 251 134 169 075
Current liabilities 101 582 837 028
Trade payables 6 735 102 178
Other payables 26 562 99 184
Deferred revenue 2 715 53 935
Provisions 10 469 25 795
Taxation 18 469 54 188
Bank overdrafts 589 161 082
Non-interest bearing liabilities - 73 477
Interest bearing liabilities 36 043 267 189
Total equity and liabilities 242 512 797 984
Notes
1. Long-term non-interest bearing provisions include the anticipated claims in
terms of the S311 arrangement. The claims have not been submitted and are
subject to approval in terms of the Scheme of Arrangement.
2. Interest bearing convertible loan notes include the Metrofile C and MGX loan
notes that have been subordinated by the financiers.
3. Long-term interest bearing liabilities include the Metrofile A and B loan
notes.
SUMMARISED CONSOLIDATED CASH FLOW STATEMENT
Reviewed Audited
12 months 12 months
ended ended
30 June 30 June
R`000 2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES
Cash generated from/(utilised in) operations
before net working capital changes 49 640 (1 297)
Increase in net working capital 11 762 81 192
Cash generated from operations 61 402 79 895
Net finance costs (68 972) (78 687)
Normal taxation paid (3 978) (7 288)
Net cash outflow from operating activities (11 548) (6 080)
Net cash inflow/(outflow) from
investing activities 19 118 (85 622)
Net cash inflow from financing activities 80 965 50 398
Net increase/(decrease) in cash and
cash equivalents 88 535 (41 304)
Cash and cash equivalents at beginning of year (76 851) (37 357)
Translation difference on opening cash position - 1 810
Cash and cash equivalents at end of year 11 684 (76 851)
Bank balances 12 273 84 231
Bank overdrafts (589) (161 082)
STATEMENT OF CHANGES IN EQUITY
Non-
Distri- Distri-
Share Share butable butable
capital premium reserves reserves Total
R`000 R`000 R`000 R`000 R`000
Balance at
30 June 2002 407 201 794 9 056 262 509 473 766
Attributable loss - - - (702 076) (702 076)
Change in accounting
policy in adopting AC 133 - - - (1 861) (1 861)
Foreign currency reserve - - (4 389) - (4 389)
Offset of treasury shares - 852 - - 852
Impairment of share
incentive schemes 1 (6 984) - - (6 983)
Balance at 30 June 2003 408 195 662 4 667 (441 428) (240 691)
Attributable loss - - - (87 210) (87 210)
Transfer of reserves - - (7 600) 7 600 -
Offset of treasury shares - (6) - - (6)
Foreign currency reserve - - 106 - 106
Balance at 30 June 2004 408 195 656 (2 827) (521 038) (327 801)
SEGMENTAL ANALYSIS
Reviewed Audited
12 months 12 months
Continuing Discontinued ended ended
R`000 operations operations 30 June 2004 30 June 2003
Revenue by segment 234 742 239 061 473 803 1 251 051
Enterprise solutions - 9 560 9 560 185 461
Business continuity - 33 150 33 150 81 836
Content management 234 742 139 661 374 403 440 275
Storage solutions - 11 373 11 373 318 842
Software development - 45 317 45 317 222 925
Central services, et al - - - 1 712
Revenue by region 234 742 239 061 473 803 1 251 051
South Africa 234 742 99 400 334 142 1 027 884
United States of America - - - 15 971
United Kingdom - 139 661 139 661 207 196
EBITDA by segment 37 884 7 311 45 195 (3 511)
Enterprise solutions - (3 408) (3 408) (11 770)
Business continuity - 6 324 6 324 11 693
Content management 60 750 20 216 80 966 71 457
Storage solutions - (3 598) (3 598) (8 091)
Software development - (6 320) (6 320) (31 263)
Central services, et al (22 866) (5 903) (28 769) (35 537)
EBITDA by region 37 884 7 311 45 195 (3 511)
South Africa 37 884 (13 029) 24 855 976
United States of America - - - (22 197)
United Kingdom - 20 340 20 340 17 710
The following entities are included under the Discontinued operations - having
been sold or are in the process of being sold:
- Enterprise Solutions, Storage Solutions, Business Continuity Solutions,
Software Futures, Dion Business Systems, MGX Property and Graphic Data. EC-Hold
is also disclosed under discontinued operations, because of its possible
liquidation.
COMMENTARY ON RESULTS
MGX Profile
MGX is a holding company whose shares are quoted in the `Information
Technology: Software and Computer Services` sector of the JSE Securities
Exchange South Africa (`JSE`) lists.
MGX itself has R67 million of unlisted subordinated interest bearing loan debt,
which will convert into MGX ordinary shares if it is not repaid or refinanced
before 4 March 2009. A portion of the long-term provisions of R47,8 million may
also become additional MGX subordinated convertible loan debt if the provisions
crystallise into proved claims against the company.
At the reporting date MGX had disposed of most of its businesses and assets,
other than its equity share capital in Metrofile (Pty) Limited (`Metrofile`),
its Midrand property and interest in EC-Hold.
Change of Name
MGX`s future focus is its investment in Metrofile. Accordingly MGX intends to
propose to shareholders that MGX`s name be changed to Metrofile Holdings
Limited.
Profile and Financial Structure of Metrofile
Metrofile is the South African market leader in the management of business
records. It provides consulting and implementation of full life cycle paper and
electronic records management on or off-site, including collation, scanning,
digital conversions, physical or electronic preservation and destruction
services that satisfy legislative and corporate governance requirements.
Metrofile`s 16 storage centres, at locations throughout South Africa, currently
hold over 16 billion customer paper records and have the capacity to process 70
milion images per month.
Financially, a new Metrofile company, was established during 2004 pursuant to
the entering into of a common terms agreement (`CTA`) with the capital providers
to the MGX group and the sanctioning by the court of the S311 Scheme of
Arrangement. The new Metrofile acquired the assets and business of Metrofile for
R333 million funded by the capital providers to the MGX group through A, B and C
loan facilities. The remaining MGX debt was retained by MGX and Metrofile has no
liability in that regard.
The new Metrofile funding has the following features:
- The A debt of approximately R121,9 million has interest paid monthly and
will reduce from operating cash flows to R80,0 million which will then be an on-
going normal lending facility to Metrofile.
- The B debt of approximately R121,3 million is interest bearing and will be
serviced once the A debt has been reduced as set out above. Thereafter the
capital of the B debt will be paid. To the extent that this debt has not been
settled in full or refinanced by 4 March 2009 the holders of the debt may elect
to continue as creditors or to convert the debt to equity in Metrofile.
- The C debt of approximately R100,3 million is subordinated and interest
bearing. Interest and capital is to be paid after the obligations relating to
the A and B debt have been met. Any debt not redeemed or refinanced by 4 March
2009 will be compulsorily converted into Metrofile equity.
Notwithstanding the disruptions and negative publicity arising from the
reorganisation of MGX, Metrofile achieved revenue of R234,7 million and EBITDA
of R60,7 million in the year to 30 June 2004. Metrofile expects to improve
results in the years ahead now that the uncertainty at MGX has been removed and
Metrofile`s BEE transaction has been concluded.
Black Economic Empowerment (`BEE`) in Metrofile
Subsequent to the year-end MGX and Metrofile have concluded a transaction with
Mineworkers Investment Company (Pty) Limited (`MIC`), which was announced on
SENS and in the press on 21 October 2004. In terms of this agreement, MIC will
acquire a 25% equity interest in Metrofile from MGX.
The board of MGX believes that this transaction will place Metrofile in a
position to retain and grow its corporate business and compete more effectively
for Government and parastatal business. The deal has also been structured to
motivate MIC to assist Metrofile to repay the loans convertible into Metrofile
equity (which would eliminate MGX`s equity in Metrofile), as MIC`s interest in
Metrofile will automatically reduce from 25% to 10% if this takes place. MIC`s
assistance in achieving growth in Metrofile is accordingly essential to MGX
stakeholders and to Metrofile itself.
The Period in Retrospect
- MGX experienced severe liquidity problems in 2002 and the value of its
businesses and their revenues plummeted as the financial pressure increased.
- A consortium of banks and credit granters to MGX provided a life line
facility of R100 million which gave the group time to dispose of virtually all
of its assets, other than Metrofile, enter into a restructuring agreement with
the credit grantors and propose a S311 Scheme of Arrangement which was
sanctioned by the Court.
- As a result of the co-operation of the credit grantors, South African
Revenue Services (`SARS`) and the major shareholders, Metrofile has emerged in a
position to restore the growth of its business. MGX has retained a possibility
of restoring value to its stakeholders in the next few years although it is
anticipated that this will require refinancing or the raising of equity at a
future date.
- The sale of the Midrand property since the year-end will reduce the debt by
R35 million in the next few months.
- MGX`s own head office costs have been drastically reduced.
Financial Performance
The income statement presents an improved picture relative to the prior year.
However both the current and prior years contain figures from businesses and
assets sold or discontinued. Stakeholders` attention is drawn to the segmental
analysis and the performance of the on-going South African content management
business, which was most satisfactory in difficult conditions.
The consolidated balance sheet reflects the effects of the restructuring. The
sale of the Midrand property will reduce assets and interest bearing liabilities
by R35 million before the end of the current calendar year. In addition, it
should be noted that the trademarks and goodwill attributable to the Metrofile
business are not reflected on the consolidated balance sheet.
Going Concern
The consolidated balance sheet reflects a surplus of liabilities over assets.
The board nevertheless regards the group as a going concern for the following
reasons:
- The total of the compulsory convertible subordinated loans, the provisions
that may become subordinated loans and the estimated value of goodwill and
trademarks in Metrofile not reflected on balance sheet, are together sufficient
to restore commercial solvency.
- The group`s cash requirements for debt servicing and capital repayments are
satisfactorily covered by the group`s current and projected cash flows and the
group has unutilised working capital facilities.
- All payments to SARS and all trade creditors are up to date.
- Balance sheet assets have been carefully tested for impairment and are
carried at fair values.
- The group is trading in line with budget.
- Key management is in place with appropriate annual incentives and a longer-
term incentive scheme is to be proposed to shareholders shortly.
Delisting
The board believes that it will be in the interest of stakeholders for MGX to
delist from the JSE. However, there are technical difficulties that preclude
this course of action being pursued at the present time. If circumstances
change, the board may make an appropriate proposal to shareholders.
EC-Hold Limited (`EC-Hold`)
MGX is the controlling shareholder of EC-Hold and a major loan creditor in EC-
Hold. EC-Hold is technically insolvent as at 30 June 2004. It has continued
trading only due to the subordination of a portion of MGX`s loan claims against
EC-Hold, a waiver of interest on those claims and working capital support for
the excess of costs over income in EC-Hold, which arise mostly from the expenses
associated with its continued listing on the JSE.
MGX and EC-Hold, in consultation with certain minority shareholders in EC-Hold,
commissioned a forensic report by Deloitte & Touche into transactions between EC
Hold and MGX between 1999 and 2004. Nothing material arose from this report,
except that the cost of about R0,5 million associated with preparing the report
had again to be borne by MGX.
EC-Hold approached the JSE for a waiver of certain compliance requirements in
order to save costs, or alternatively, permission to delist. The JSE confirmed
that it would permit EC-Hold to delist, provided that it complied with all the
relevant sections of the JSE Listings Requirements. MGX indicated that it would
make a nominal offer to shareholders to enable a delisting and fund the costs.
EC-Hold shareholders would not be obliged to accept the offer and it would be
pointed out to EC-Hold shareholders that they could still retain the possibility
of a substantially higher offer of up to 240 cents per share arising from the
current legal action between the Securities Regulation Panel (`SRP`) and MGX.
The SRP acknowledged that the matter of the delisting was not within their
jurisdiction but indicated that they would oppose any offer by MGX or any
related party unless it was at the level currently being adjudicated by the
courts, notwithstanding that the offer was not compulsory and that the
alternative would be pointed out to shareholders.
Under these circumstances MGX has indicated to
EC-Hold that it will not renew the subordination of its loan nor continue
working capital support when the current arrangement expires.
The EC-Hold board has accordingly resolved that the most expedient and cost
effective course of action would be to apply for a liquidation order to enable a
liquidator to dispose of EC-Hold`s remaining assets and pay a dividend to
creditors. MGX has indicated that, subject to certain conditions, it will
procure that all known trade creditors of EC-Hold (which are not expected to
exceed R0,5 million), will be paid 100 cents in the Rand. No surplus is expected
for EC-Hold shareholders.
MGX Board
Antony Ball resigned from the board on 1 February 2004 and Eduardo Gutierrez-
Garcia joined the board from that date. Norman Webster resigned on 30 June 2004
and Graham Wackrill was appointed an executive director from that date.
MGX itself has no Chief Executive Officer. The Chief Executive Officer functions
are performed by the Chief Financial Officer of MGX, and the Chief Executive
Officer of Metrofile, assisted by the Chairman of MGX.
Metrofile Board
The Board of Metrofile (Pty) Limited will be restructured as follows:
Paul Nkuna Chairman
Christopher Seabrooke Deputy Chairman
Graham Wackrill Chief Executive Officer
Richard Buttle Chief Financial Officer
Colin de Villiers Executive
Roy Midlane Non-executive
Keshan Pillay Non-executive
Norman Webster Non-executive
Corporate Governance
Notwithstanding the circumstances of the past eighteen months, the board has
made every effort to ensure sound corporate governance. The board comprises five
directors, three of whom are non-executive and two of whom are independent.
Audit, Risk and Governance and Remuneration and Nominations Committees are in
place and the board and committees have written charters.
MGX`s chairman has unavoidably been actively engaged in the restructuring
process, the negotiations with the capital providers, the disposal of assets,
the restructuring of management and the BEE transaction. It is anticipated that
he will revert to a more traditional role in the period ahead.
Prospects
Metrofile`s future prospects are good. Satisfactory growth in volume turnover
and in financial results is expected.
MGX itself continues to reduce its costs, complete the winding-up of its
remaining subsidiary companies, other than Metrofile, settle outstanding
disputes and progress actions against certain parties arising from past
transactions.
The prospects for MGX shareholders and loan note holders have improved
significantly.
However, for value to be created for these stakeholders, a strong future
performance from Metrofile is required. In addition, in the course of the five-
year window of opportunity given to the group by the credit grantors, a second
phase of restructuring may be necessary to facilitate the refinancing or
repayment of convertible debt in Metrofile and in MGX.
Accounting Policies
Results for the year have been prepared in accordance with South African
Statements of Generally Accepted Accounting Practice applicable to interim
financial reporting and are consistent with the prior year.
Auditors` review opinion
The results have been reviewed by Deloitte & Touche whose review report is
available for inspection at the company`s registered office. The report contains
a matter of emphasis with respect to going concern.
Audited financial statements are expected to be dispatched to shareholders
within six weeks.
Contingent Liabilities
SRP/MGX/EC-Hold
In March 2002 the SRP ruled that, for the purposes of the Securities Regulation
Code on Take-overs and Mergers and the Rules of the SRP, MGX and the Trustees of
the Mandy Rebecca Price Trust had acted in concert for the purposes of entering
into an affected transaction. MGX and the Mandy Rebecca Price Trust were
ordered, jointly and severally, to make an unconditional offer to all persons,
other than themselves, who were shareholders of EC-Hold on
11 October 1999 to purchase all their shares in EC-Hold. The offer price
determined by the SRP was 240 cents per EC-Hold share. MGX has not complied with
the ruling of the SRP and in August 2003, a summons, issued by the High Court of
South Africa, Witwatersrand Local Division, was served on MGX, in terms of which
the SRP sought an Order against MGX and several other defendants to, inter alia,
comply with its ruling of March 2002. MGX has entered an Appearance to Defend.
MGX believes that it has taken adequate steps to ensure that the costs of
defending this matter or any adverse Court decision will not have to be paid by
MGX itself in cash.
Standard Bank London
MGX signed surety for a bank loan to DiData UK. The current outstanding balance
is GBP90 000 and the sold subsidiary is in the process of transferring the debt
to a new financier, which will result in the cancellation of the security.
EC-Hold subordinated loan and letter of support
MGX has increased its subordinated loan to EC-Hold to R14 million and given a
letter of financial support to EC-Hold valid to 30 June 2005, subject to certain
conditions. MGX has advised EC-Hold that it will not renew these undertakings
after that date.
Copicor
MGX is liable for the entire Copicor lease commitment, but on charges the
portion of the fees related to AL Indigo and Lechabile Storage Solutions. The
outstanding liability in the form of future lease payments related to these two
companies is R1,4 million.
MGX/Eureka Pension Fund
Based on the actuarial valuation at 1 September 2002, there is a deficit in the
fund of R9,1 million. Unless the fund has been transferred to the Abacus fund or
liquidated by 31 August 2005, the employers may be liable to make good the
deficit.
Spartan
MGX signed lease agreements relating to assets used by and sold to Software
Futures. In terms of the disposal agreement, Software Futures will honour and
pay the lease payments. If Software Futures does not honour their obligations in
terms of the lease agreements, MGX will be responsible to settle the outstanding
lease commitments.
Commitments
- Lease of computer equipment - R4,7 million payable over the next five years.
- Rental commitments for the next +/- three years, amounting to R0,9 million.
- No material capital commitments exist in the group.
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.
Christopher Seabrooke Roy Midlane
Chairman Chief Financial Officer
27 October 2004
Cleveland
Gauteng
Registered office: MGX House, 22 Milkyway Avenue, Linbro Business Park
Registration number: 1983/012697/06
Sponsor: Standard Bank
Transfer secretaries:
Computershare Investor Services 2004 (Proprietary) Limited,
70 Marshall Street, Johannesburg, 2001
Directors: C S Seabrooke* (Chairman), E Gutierrez-Garcia*, D E Baloyi*, S R
Midlane, G D Wackrill
*Non-executive
Company Secretary: C D du Plessis
www.mgxgroup.com
