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MMG
MMG
Micromega - Audited group results for the year ended 31 December 2005
MICROmega Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1998/003821/06
Share code MMG & ISIN ZAE000034435
("Micromega" or "the Company")
AUDITED GROUP RESULTS FOR THE YEAR ENDED 31 DECEMBER 2005
INCREASE IN REVENUE 86.75%
INCREASE IN HEADLINE EARNINGS PER SHARE 91.08%
INCREASE IN ATTRIBUTABLE EARNINGS PER SHARE 21.57%
INCREASE IN NET ASSET VALUE PER SHARE 25.23
ABRIDGED INCOME STATEMENT Audited Audited
Year Year
ended ended
31 31
December December
2005 2004
Restated
for IFRS
Notes R ("000) R ("000)
Revenue 159 339 85 324
Operating profit 18 335 6 359
Net finance income 3 390 3 811
Share of profits of associates 48 39
Profit before taxation 21 773 10 209
Taxation -6 440 -3 986
Profit after taxation 15 333 6 223
Exceptional item 0 6 021
Profit for the period 15 333 12 244
Attributable to:
Ordinary shareholders 15 442 12 232
Minorities -109 12
Reconciliation of headline
earnings
Net profit attributable to 15 442 12 232
ordinary shareholders
Impairment of goodwill 561 0
Exceptional item 0 -6 021
Profit on sale of 50% of 2 -25 101 0
subsidiary
Impairment of loan 3 26 120 0
Restructuring provision 0 2 464
Initial cost of BEE transaction 191 0
Headline earnings 17 213 8675
Headline earnings per share 18.86 9.87
(cents)
Attributable earnings per share 16.92 13.92
(cents)
Diluted earnings per share (cents) 16.40 13.55
Weighted average number of shares 91 253 87 876
Diluted weighted average shares in 94 154 90 241
issue
Total number of shares in issue 92 905 88 745
ABRIDGED BALANCE SHEET
Audited Audited
Year Year
ended ended
31 31
December December
2005 2004
Restated
for IFRS
R ("000) R ("000)
ASSETS
Non-current assets
Property, plant and equipment 17 965 6 780
Goodwill 30 079 22 443
Intangible assets 17 664 3 150
Deferred tax 3 624 8 831
Investments 3 297 822
Loans receivable 4 223 5 483
Current assets
Inventories 11 635 4 363
Accounts receivable 38 595 16 834
Current portion of loans 1 991 6 906
receivable
Cash and cash equivalents 46 254 45 922
Total assets 175 327 121 534
EQUITY AND LIABILITIES
Equity
Equity holders" interest 97 219 75 596
Minorities interest 0 109
Non-distributable reserve 6 444 3 368
Non-current liabilities
Borrowings 15 087 9 596
Current liabilities
Taxation 6 501 398
Accounts payable 23 713 14 546
Current portion of borrowings 21 332 10 881
Provisions 5 031 7 040
Total equity and liabilities 175 327 121 534
Net asset value per share (cents)
111.58 89.10
Net tangible asset value per share
(cents) 60.19 60.26
ABRIDGED CASH FLOW STATEMENT
Audited Audited
Year Year
ended ended
31 31
December December
2005 2004
Restated
for IFRS
R ("000) R ("000)
Cash generated by operations -8 389 10 121
Movement in working capital -10 555 -7 460
Net investment income 3 386 3 809
Dividends received 53 41
Taxation paid -1 633 -1 293
Net cash from operating activities -17 138 5 218
Net cash used in investing -6 285 -28 937
activities
Capital raised 6 027 2 444
Loans raised 17 728 19 657
Loans repaid 0 -2 310
Net cash used in financing 23 755 19 791
activities
Net increase / (decrease) in bank 332 -3 928
and cash
Represented as follows:
Bank and cash at beginning of the 45 922 49 850
year
Bank and cash at end of the period 46 254 45 922
Net increase / (decrease) in bank 332 -3 928
and cash
ABRIDGED STATEMENT OF CHANGES
Share Share Share-based Revaluation
IN EQUITY capital premium payment reserve
reserve
R (" 000) R (" 000) R (" 000) R (" 000)
Balance at 1 856 173 326 1 512 0
January 2004
SA GAAP reported 856 173 326 0 0
balance at 1
January 2004
Cumulative 0 0 1 512 0
effects of IFRS
adoption
Restated net 0 0 0
profit for the
year
Acquisition of
subsidiary
Minority interest
in net profit of
the year
Employee share 1 142
options - value
of services
provided
Revaluation of 714
property, plant
and equipment
Issue of shares 31 2 444 0
Share issue 0 -32 0 0
expenses
Balance at 1 887 175 738 2 654 714
January 2005
SA GAAP reported 887 175 738 0 0
balance at 1
January 2005
Cumulative 0 0 2 654 714
effects of IFRS
adoption
Correction of 0 0 0
error
Net profit for
the period
Minority interest
in net profit of
the year
Employee share 2 406
options - value
of services
provided
Revaluation of 669
property, plant
and equipment
Change in
estimate
Issue of shares 42 6 004
Share issue 0 -18
expenses
Balance at 31 929 181 724 5 060 1383
December 2005
ABRIDGED STATEMENT OF CHANGES (Contd.)
Minority Accumulated Total
IN EQUITY interest loss
R (" 000) R (" 000) R (" 000)
Balance at 1 0 -113 261 62 433
January 2004
SA GAAP reported 0 -111 903 62 279
balance at 1
January 2004
Cumulative -1 358 154
effects of IFRS
adoption
Restated net 12 232 12 232
profit for the
year
Acquisition of 97 97
subsidiary
Minority interest 12 12
in net profit of
the year
Employee share 1 142
options - value
of services
provided
Revaluation of 714
property, plant
and equipment
Issue of shares 0 2 475
Share issue 0 -32
expenses
Balance at 1 109 -101 029 79 073
January 2005
SA GAAP reported 109 -97 029 79 705
balance at 1
January 2005
Cumulative 0 -2 389 979
effects of IFRS
adoption
Correction of -1 610 -1 610
error
Net profit for 15 442 15 442
the period
Minority interest -109 -109
in net profit of
the year
Employee share 2 406
options - value
of services
provided
Revaluation of 669
property, plant
and equipment
Change in 154 154
estimate
Issue of shares 6 046
Share issue -18
expenses
Balance at 31 0 -85 433 103 663
December 2005
NOTES
1. Basis of preparation
The audited abridged results for the year ended 31 December 2005 have been
prepared in accordance with International Financial Reporting Standards
("IFRS"). The company is reporting under IFRS for the first time for the year
ended 31 December 2005. These standards are subject to ongoing review and may
change.
Comparative figures have been restated accordingly.
The disclosure required by IFRS 1 (First-time Adoption of International
Financial Reporting Standards) concerning the transition from South African
Statements of Generally Accepted Accounting Practice ("SA GAAP") to IFRS and the
required changes in accounting policies are set out in the table below.
Reconciliation of SA GAAP to IFRS Audited IFRS
12 months transitions
31 1 January
December
2004 2004
R ("000) R ("000)
Balance sheet
Equity as previously reported under SA GAAP 79 596 62 279
Restatements for IFRS
-631 154
Property, plant and equipment 835
Employee share options - value of services 2 654 1 512
provided
IFRS Adjustments to earnings -2 389 -1 358
Deferred tax -121
Correction of error -1 610
Equity as reported under IFRS 78 965 62 433
Income statement
Net profit as previously reported under SA GAAP 14 877
Restatements for IFRS
-2 645
Change in depreciation 156
Employee share options - value of services -1 142
provided
Deferred tax -47
Deferred tax correction of error -1 612
Restated net profit per IFRS 12 232
2005 2004
R ("000) R ("000)
2. Profit on sale of 50 % of subsidiary
50 % of MICROmega Revenue Management Solutions
(Proprietary) Limited was
disposed of to Mzimkhulu Investments (Pty) Ltd
resulting in a capital profit.
Capital profit on disposal 25 101 0
3. Long term loan
Loan Mzimkhulu Investments (Pty) Ltd 33 691 0
-26 120
Impairment of loan -30 550 0
Tax effect 4 430
Loan balance 3 141 0
The loan has been impaired until such time as the revenue generated by the
underlying investment is available to service the repayment of capital. The
impairment will be reviewed on an annual basis.
Commentary on results
We are pleased to report a 91% increase in headline earnings per share to 18.9
cents for the financial year ended 31 December 2005. Operating profits for this
reporting period were reduced by R2 226 309 as a direct result of the impact of
accounting in accordance with IFRS for share options issued to staff and changes
in estimates. The adoption of IFRS has resulted in the prior year headline
earnings per share of 11.7 cents being restated to 9.9 cents.
The strong increase in earnings can be attributed to the contribution from
acquisitions concluded during the year as well as the strong organic growth from
our financial and support service businesses.
The group has diversified its activities beyond the provision of financial
services into support services, information technology, manufacturing and agency
businesses. This significantly strengthened the company"s ability to grow
earnings without placing key dependency on isolated sectors of the market.
Financial services sector
The two companies in this sector namely, MICROmega Securities and MICROmega
Revenue Management Solutions, collectively, contributed 48% to total headline
earnings.
MICROmega Securities was established in 1991 and acquired on the 1 February
2000. MICROmega Securities is an inter-dealer broker providing broking services
to both domestic and international banks. Whilst the earnings from this business
are dependant on market volatility, and the consequent demand for trade between
their clients, we remain confident that the role the business has as a dominant
provider of liquidity in the domestic markets, will ensure that it continues to
make a contribution to earnings growth in future periods.
MICROmega Revenue Management Solutions was established in 1972 and acquired on
the 1 July 2001. MICROmega Revenue Management Solutions is South Africa"s
largest public sector revenue management service provider. The business is
responsible for the day to day management of more than a million commercial and
domestic consumers. This business was restructured during the first quarter of
2005 to accommodate the need for improved broad based black economic
empowerment. We are pleased to report that the restructuring was successful and
that the earnings for 2005 reflected these benefits.
Report of the Auditors
RW Irish-Alliott Inc"s. unmodified audit report on the 31 December 2005
summarised financial statements contained herein is available for inspection at
the company"s registered office.
Support services
The two businesses in this sector namely, MICROmega Risk Management Services and
MECS Africa, collectively, contributed 11% to total headline earnings.
MICROmega Risk Management Services ("NOSA") provides safety, occupational health
and environmental risk management services. It is the exclusive provider of the
NOSA Five Star Grading System. NOSA a business founded in 1951 was acquired in
January 2005. The business was materially restructured during the year and
whilst there was little contribution to earnings from this business, as a direct
result of the reinvestment in the restructuring program, we are confident with
the growth prospects in forthcoming years.
MECS Africa was established in 1981 and acquired on the 1 October 2005. MECS
provides flexible alternative solutions to permanent employment in the
construction, engineering and petrochemical industry. In addition to South
Africa, MECS has operating activities in both Angola and Australia. The business
is a dominant service provider in its sector and has, post acquisition, enjoyed
significant growth in earnings as a direct result of now having greater access
to capital.
Information technology
The two companies in this sector namely, Intermap and Sebata Municipal
Solutions, collectively, contributed 26% to total headline earnings.
Intermap was established in 1998 and acquired on the 1 January 2004. Intermap
provides leading edge, innovative and efficient customised web-based business
information systems for clients in every realm of commerce, industry and
government. Services and products from this business were demand driven during
the period under review and the consequent order book has ensured that the
business will continue to enjoy strong earnings growth in 2006.
Sebata Municipal Solutions was established in 1997 and acquired on the 1
December 2004. Sebata provides software development and support services to 87
Local Authorities. Revenue is secured primarily through long-term service level
agreements and consequently the business"s earnings are underpinned with strong
annuity based income streams.
Manufacturing and agency businesses
The two companies in this sector namely, Deltec Power Distributors and BTM
Manufacturing, collectively, contributed 15% to total headline earnings.
Deltec Power Distributors was established in 1979 and acquired on the 1 October
2004. Deltec has an agency agreement to supply both the Global and Delphi
battery range in Southern Africa. An aggressive marketing strategy resulted in
the business increasing revenues by 40% during the period under review.
BTM Manufacturing was established in 1978 and acquired on the 1 November 2005.
BTM is the largest manufacturer of Bullbars and the second largest manufacturer
of Towbars in South Africa. Given the current growth in the automotive sector
the business has enjoyed its strongest growth in revenues and earnings in 2005,
it is anticipated that this growth will continue in 2006.
Prospects
We are confident that revenue will double in 2006, and that we will continue to
retain the current operating margins in our businesses. Our strategy is to
continue to identify and pursue acquisition opportunities and this together with
our current strong earnings growth will ensure that we continue to enjoy the
current high levels of growth.
By order of the Board
Directors: I G Morris (Chairman) W E Rosenberg (CEO) R Lewin (Executive) J
Storom (Executive) A Vercueil (Executive) S Mpanza (Non-Executive) H Seabi (Non-
Executive)
Company Secretary: D J Case
Auditors R W Irish - Alliott Inc. Registered Accountants and Auditors
Transfer Secretaries: Computershare Investor Services 2004 (Pty) Ltd
Sponsor: LPC Manhattan Moela Sponsors (Pty) Ltd
Date: 31/03/2006 05:36:11 PM Produced by the JSE SENS Department
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