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MFL
MFL
Metrofile - Reviewed Results For The Six Months Ended 31 December 2005
METROFILE HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1983/012697/06)
Share code: MFL & ISIN: ZAE000061727
(Metrofile Holdings or "the company" or "the group")
Metrofile
REVIEWED RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2005
Summarised consolidated income statement
Reviewed Restated Restated
6 months 6 months 12 months
ended ended ended
R"000 Notes 31 Dec 2005 31 Dec 2004 30 June 2005
Revenue 136 626 117 302 254 437
Operating income before 42 397 30 730 75 091
foreign exchange gains
Foreign exchange gains 37 28 33
Operating income before 1 42 434 30 758 75 124
depreciation
Depreciation (5 574) (6 268) (11 747)
Exceptional gains 3 706 377 133
Operating profit before 40 566 24 866 63 510
finance costs
Income from investments 398 425 1 267
Fair value adjustments 1 (3 993)
on financial
instruments
Finance costs 1 (28 635) (27 715) (53 782)
Profit/(loss) before 8 336 (2 424) 10 995
taxation
Taxation (4 492) (415) 4 909
Profit/(loss) for the 3 843 (2 839) 15 904
period
Attributable to:
- Equity holders 1 544 (2 838) 14 815
- Minority interest 2 299 1 089
Attributable 3 843 (2 838) 15 904
profit/(loss)
Number of ordinary 74 077 74 077 74 077
shares in issue
(thousands)
Number of ordinary 6 877 6 877 6 877
shares in treasury
(thousands)
Number of ordinary 67 200 67 200 67 200
shares in issue after
deducting treasury
shares (thousands)
Weighted average number 67 200 67 200 67 200
of ordinary shares in
issue (thousands)
Earnings/(loss) per 2,3 (4,2) 22,0
ordinary share (cents)
Fully diluted headline 2 6,1
earnings/(loss) per
ordinary share (cents)
Headline 2,3 (4,8) 29,0
earnings/(loss) per
ordinary share (cents)
Fully diluted headline 2 7,8
earnings per ordinary
share (cents)
Summarised consolidated balance sheet
Reviewed Restated Restated
as at as at as at
R"000 Notes 31 Dec 31 Dec 2004 30 June 2005
2005
ASSETS
Non-current assets
Property, plant and 153 351 155 238 150 174
equipment
Long-term receivables 614 1 126
Intangibles 3
Current assets 65 019 89 948 67 104
Inventories 8 814 8 981 8 029
Trade receivables 40 875 36 962 38 911
Other receivables 5 612 35 942 10 793
Bank balances 9 718 8 063 9 371
Total assets 218 984 245 186 218 404
EQUITY AND LIABILITIES
Equity capital and (291 952) (320 452) (295 795)
reserves
Ordinary shareholders" (295 341) (320 452) (296 884)
interest
Outside shareholders" 3 388 1 089
interest
Non-current liabilities 441 360 459 846 438 568
Interest-bearing 4 42 522 53 867 36 899
provisions
Interest-bearing 5 206 121 179 600 190 682
subordinated redeemable
convertible loans
Interest-bearing 6 187 650 222 055 205 338
liabilities
Deferred taxation 5 068 4 324 5 650
liability
Current liabilities 69 576 105 791 75 631
Trade payables 8 379 7 920 7 056
Other payables 20 364 19 069 24 990
Deferred revenue 5 337 2 774 3 317
Provisions 4 762 12 158 6 353
Taxation 9 480 7 332 13 600
Bank overdrafts 425
Interest-bearing 21 255 56 113 20 315
liabilities
Total equity and 218 984 245 186 218 404
liabilities
Net liability per 434,5 476,9 440,2
ordinary share (cents)
Notes
1.*The current year profit before taxation includes R3,9 million provision
raised to comply with IAS39 for future interest related to certain interest rate
swap agreements entered into during the period under review. It also includes
interest of R5,9 million provided on potential claims that still needs to be
finalised. In terms of IFRS 2 R0,5 million was recognised as share-based
payments in the current period (2005: R5,7 million).
2.*The adjustment to determine diluted earnings per share is directly
attributable to an interest saving of R5,3 million should the Metrofile Holdings
loan notes convert into ordinary shares. The increase in number of ordinary
shares in issue is calculated by dividing the outstanding capital amount
(excluding any accrued interest) of the Metrofile Holdings loan notes held by
third parties (include notes held by third party creditors and excludes any
inter-company loan notes, share options and any other payables) by the average
market price per share during the period and then adding the calculated increase
in shares to the existing weighted average number of ordinary shares in issue.
Current year and prior year interim diluted earnings per share are nil as they
were anti-dilutive.
3.*As intangibles are not revalued, no balances are reflected on the
consolidated balance sheet. In Metrofile (Pty) Limited goodwill and trademarks
in the amount of R183,9 million are reflected, being the values arising from the
inter-group transactions arising in 2004, less trademark amortisation.
4.*Long-term interest-bearing provisions include anticipated claims in terms of
the S311 arrangement. The provisions also include creditors that may become
owners of interest-bearing redeemable convertible loans. Interest-bearing
provisions include provision for future interest related to certain interest
rate swap agreements entered into during the period under review.
5.*Interest-bearing convertible loan notes include the Metrofile C and MGX loan
notes that have been subordinated by the financiers.
6.*Long-term interest-bearing liabilities include the Metrofile A and B loan
notes.
7.*No segmental analysis has been reported as the group trades in only one
segment.
Summarised consolidated cash flow statement
Reviewed Restated Restated
as at as at as at
R"000 31 Dec 2005 31 Dec 2004 30 June 2005
CASH FLOWS FROM OPERATING
ACTIVITIES
Cash generated from 42 146 25 495 92 754
operations before net
working capital changes
Decrease in net working 44 5 750 (9 544)
capital
Cash generated from 42 190 31 245 83 210
operations
Net finance costs (28 237) (27 290) (52 515)
Normal taxation paid (9 270) (4 000) (10 594)
Net cash inflow/(outflow) 4 683 (45) 20 101
from operating activities
Net cash (outflow)/inflow (8 270) (7 438) 26 552
from investing activities
Net cash inflow/(outflow) 3 934 3 436 (48 966)
from financing activities
Net increase/(decrease) in 347 (4 047) (2 313)
cash and cash equivalents
Cash and cash equivalents at 9 371 11 684 11 684
the beginning of the year
Cash and cash equivalents at 9 718 7 637 9 371
the end of the year
Bank balances 9 718 8 063 9 371
Bank overdrafts (426)
Statement of changes in equity
Non-
distri-
Share Share butable
capital premium reserves
R"000 R"000 R"000
Balance at 1 July 2004 as 408 195 656 (2 827)
previously reported
Adjustments for changes in
accounting policies as a
result of IFRS adoption
IAS16 - Property, plant and
equipment
Restated balance at 1 July 408 195 656 (2 827)
2004
Net loss for the six months
ended 31 December 2004
Net loss for the period as
previously reported
Adjustments for changes in
accounting policies as a
result of IFRS adoption
IAS16 - Property, plant and
equipment
Foreign currency reserve (711)
Restated balance at 31 408 195 656 (3 538)
December 2004
Net profit for the six
months ended 30 June 2005
Net profit/(loss) for the
period as previously
reported
Adjustments for changes in
accounting policies as a
result of IFRS adoption
IAS16 - Property, plant and
equipment
IFRS 2 - Share-based
payments
Effect of IFRS adoption on
minority interest in
restated earnings for the
period
Foreign currency reserve 620
Restated balance at 30 June 408 195 656 (2 918)
2005
Profit for the period
Balance at 31 December 2005 408 195 656 (2 918)
Minority
Attri- share-
butable holder
loss interest Total
R"000 R"000 R"000
Balance at 1 July 2004 as (521 038) (327 801)
previously reported
Adjustments for changes in 10 898 10 898
accounting policies as a
result of IFRS adoption
IAS16 - Property, plant and
equipment
Restated balance at 1 July (510 140) (316 903)
2004
Net loss for the six months (2 838) (2 838)
ended 31 December 2004
Net loss for the period as (4 060) (4 060)
previously reported
Adjustments for changes in 1 222 1 222
accounting policies as a
result of IFRS adoption
IAS16 - Property, plant and
equipment
Foreign currency reserve (711)
Restated balance at 31 (512 978) (320 452)
December 2004
Net profit for the six 22 948 1 089 24 037
months ended 30 June 2005
Net profit/(loss) for the 23 222 23 222
period as previously
reported
Adjustments for changes in 1 226 1 226
accounting policies as a
result of IFRS adoption
IAS16 - Property, plant and
equipment
IFRS 2 - Share-based (411) (411)
payments
Effect of IFRS adoption on (1 089) 1 089
minority interest in
restated earnings for the
period
Foreign currency reserve 620
Restated balance at 30 June (490 030) 1 089 (295 795)
2005
Profit for the period 1 544 2 299 3 843
Balance at 31 December 2005 (488 486) 3 388 (291 952)
Transitional report
Group
R"000 31 Dec 2005 31 Dec 2004 30 July 2004
Assets
SA GAAP 134 400 140 821
IAS16 15 774 14 417
As reported under IFRS 150 174 155 238
Deferred taxation liability
SA GAAP 3 298 2 103
IAS16 2 352 2 221
As reported under IFRS 5 650 4 324
Equity
SA GAAP (307 797) (332 572) (327 801)
IFRS 2 (411)
IAS16 12 413 12 120 10 898
As reported under IFRS (295 795) (320 452) (316 903)
Profit/(loss)
SA GAAP 19 162 (4 060)
IFRS 2 (5 706)
IAS16 - reduced depreciation 2 708 1 222
IAS16 - deferred taxation (260)
As reported under IFRS 15 904 (2 838)
Profit/(loss) per share as 29,6 (6,0)
previously reported (cents)
Profit/(loss) per share as 29,0 (4,8)
reported under IFRS (cents)
Reconciliation of headline earnings
Restated Restated
6 months 6 months 12 months
ended ended ended
31 Dec 2005 31 Dec 2004 30 June 2005
R"000 R"000 R"000
Profit/(loss) to ordinary 1 544 (2 838) 14 815
shareholders
Capital (profit)/loss on (377) 7 095
sale of investments
Impairment of plant and 88
equipment
(Profit)/loss on sale of 24 7 (2 536)
plant and equipment
Headline earnings 1 568 (3 208) 19 462
Headline earnings/(loss) per 2,3 (4,8) 29,0
ordinary share (cents)
Fully diluted headline 7,8
earnings per ordinary share
(cents)
Diluted headline earnings per share for the current year and comparative period
are nil as it was anti-dilutive. Refer to note 2 to the summarised financials
for explanation of how the increase in number of shares was determined.
Commentary on results
Metrofile Holdings profile
Metrofile Holdings is quoted in the "Support Services - Business Support
Services" sector of the JSE Limited ("JSE"). The company was previously quoted
in the "Information Technology - Software and Computer Services - Software
sector".
The business of Metrofile Holdings is its investment of 65% in Metrofile (Pty)
Limited.
Metrofile (Pty) Limited is the South African market leader in the management of
business records through its 16 storage centres and locations throughout South
Africa. It provides full life cycle paper and electronic records management on
or offsite, including collation, scanning, digital conversions, physical or
electronic preservation and destruction services that satisfy legislation and
corporate governance requirements.
Loan notes in Metrofile Holdings and Metrofile (Pty) Limited
Shareholders and loan creditors are reminded of the terms of the loans, and in
particular the definitions of events of default and the potential convertibility
of some of the loans, as set out in various communications to shareholder and
most recently the announcement of 14 March 2006.
Financial review
The results for the period reflect a substantial improvement on the prior year
and were ahead of budget. EBITDA of R46,1 million (31 December 2004: R31,1
million) was achieved and the prior year"s headline loss of 4,8 cents per share
improved to headline earnings of 2,3 cents per share.
The profit for the period was negatively affected by additional provisions of
R5,9 million that were raised in Metrofile Holdings for potential creditor
claims and R3,9 million for financial instrument exposure in Metrofile (Pty)
Limited in terms of IAS39.
Revenue was ahead of budget due to improved market penetration and the securing
of new government business.
Interest-bearing debt in Metrofile (Pty) Limited totals R330 million, most of
which is currently repayable by 4 March 2009. In Metrofile Holdings loan notes
and provisions total R121,6 million (excluding inter-group loan notes of R279,2
million).
The consolidated balance sheet reflects an excess of liabilities over assets. It
should however be noted that the assets on the consolidated balance sheet are
reflected at historical cost. The board 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 in the consolidated balance sheets, 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.
* Payments to all trade creditors are up to date.
* Balance sheet assets have been tested for impairment and none is over valued.
* The group is trading in line with budgets.
* Key management is in place with appropriate incentives.
Accounting policies
In terms of the Listings Requirements of the JSE, the interim results have been
prepared in accordance with the International Financial Reporting Standards
("IFRS") IAS34 - Interim Financial Reporting, the Listings Requirements of the
JSE and the South African Companies Act.
The group has adopted and applied IFRS for the first time for the year ending 30
June 2006.
The transition date is 1 July 2004 ("the transition date"). The group"s opening
IFRS balance sheet at the transition date and the comparative results for each
of the reporting periods have therefore been restated to reflect all statements
expected to be applicable at 30 June 2006.
The transitional report contains details of the adjustments effected.
IFRS adjustments implemented
a. IFRS 2 - Share-based payments
The disposal of 35% of Metrofile Holdings" investment in Metrofile (Pty) Limited
in February 2005 was structured in agreements containing certain call and put
options. In terms of IFRS, these transactions should be seen as share-based
payments and the group accounted for these transactions as such retrospectively.
b.*IAS16 - Revision of estimated useful lives of property, plant and equipment
Past interpretation of SA GAAP did not provide for the re-assessment of an
asset"s useful life and residual value annually. IAS16 requires useful lives and
residual values to be reviewed at least at each financial year-end. This
resulted in an increase in distributable reserves with a corresponding increase
in property, plant and equipment.
Further developments in IFRS reporting
The interim results have been prepared on the basis of the group"s expectation
of the standards that will be applicable as at 30 June 2006. IFRS information at
year-end may differ from the information contained herein as further standards
and interpretations may be issued that are applicable for 2006 reporting or
which are applicable to later accounting periods but with an option to adopt for
earlier accounting periods.
IAS39 - Financial instruments
Future interest charges related to certain interest rate SWAP agreements entered
into were accounted for as financial instruments at fair value in the period
under review.
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.
Directorate and corporate governance
Mr Keshan Pillay was appointed to the board of directors during the period under
review and the board currently comprises two executive and three non-executive
directors.
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.
Contingent liabilities
SRP/EC-HOLD
Shareholders" attention is drawn to the recent announcement in terms of which a
settlement of the dispute with the SRP concerning an offer to be made to the
shareholders of EC-Hold Limited was published. The group expects no loss to
arise from this process due to indemnities held from third parties but a
substantial contingent liability will have been settled.
MGX/Eureka Pension Fund
Based on the actuarial valuation as at 1 July 2004 the full amount of the assets
will be transferred to other funds, and this will completely extinguish all
liabilities to members. Accordingly, the employers would have no liability in
this regard. As at 1 July 2004 the transfers to other funds still had to be
approved by the Registrar of Pension Funds. It is believed that approval will be
obtained. If approval is received from the Financial Services Board, the
contingent liability of R9,1 million will fall away.
Commitments
* Operating lease commitments for the next two years amount to R6,9 million.
* Metrofile (Pty) Limited has committed to certain capital expansion and
replacement projects of R8,2 million. This will be funded from free cash flows
generated by operating activities.
Post-balance sheet events
No events material to the understanding of the report have occurred in the
period between the period end date and the date of the report.
Restructuring and possible rights issue
Now that the EC-Hold matter has been resolved the two remaining legacy issues
from the MGX era are the resolution of the pension fund matter referred to above
and the quantification of the claims of a creditor for which provisions of R40,3
million have been raised by Metrofile Holdings. The group will then be in a
position to complete a final restructuring.
Shareholders are advised that the board is considering various alternatives
including a potential rights issue and/or early conversion of Metrofile Holdings
loan notes into Metrofile Holdings shares. A prerequisite will be a refinancing
of Metrofile (Pty) Limited loan obligations to remove the possible
convertibility of two classes of its loan notes.
Shareholders will be advised as soon as the group has clarity on the legacy
issues and the refinancing and is able to make a firm proposal to shareholders
and loan note holders. It is anticipated that this may take place in the third
quarter of 2006.
Prospects
The group expects improved revenue and operating results from Metrofile (Pty)
Limited and positive headline earnings per share for Metrofile Holdings for the
year to be ended 30 June 2006.
CHRISTOPHER SEABROOKE
Chairman
GRAHAM WACKRILL
CEO
ROY MIDLANE
CFO
31 March 2006
Cleveland
Gauteng
Registered office: 3 Gowie Road, The Gables, Cleveland, Johannesburg
Registration number: 1983/012697/06
www.metrofileholdings.com
Sponsor: Standard Bank
Transfer secretaries: Computershare Investor Services Limited, 70 Marshall
Street, Johannesburg, 2001
Directors: CS Seabrooke* (Chairman), DE Baloyi*, K Pillay*, SR Midlane, GD
Wackrill
Company secretary: CD du Plessis
* Non-executive
Date: 30/03/2006 04:36:13 PM Produced by the JSE SENS Department
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