MGX HOLDINGS LIMITED
Audited results for the year ended 30 June 2001
Financial Highlights
- Revenue up 93%
- Operating profit up 77%
- Headline earnings up 24%
- Headline earnings per share up 7%
- Cash generated from operations of R120 million
- Enhanced strategic positioning
- Annuity income 40%
Consolidated income statement
% 2001 2000
change R'000 R'000
Revenue 92,8 884 933 459 048
Cost of sales 438 897 226 853
Gross profit 446 036 232 195
Other income 5 001 2 270
Operating costs 291 757 148 342
Operating income before
depreciation and
goodwill amortisation 159 280 86 123
Depreciation 29 766 13 105
Operating income before goodwill
amortisation 77,4 129 514 73 018
Goodwill amortisation 18 854
Net operating income 110 660 73 018
Exceptional items 37 583
Ordinary profit before interest 73 077 73 018
Net interest paid/(received) 14 262 (11 860)
Ordinary profit before taxation 58 815 84 878
Taxation 33 067 19 895
Ordinary profit before
associate income 25 748 64 983
Associate income 15 069 4 107
Ordinary profit before minorities 40 817 69 090
Minority shareholders' interest 684 946
Attributable earnings 40 133 68 144
Weighted average number of
ordinary shares in issue (thousands) 53 924 46 262
Headline earnings per ordinary
share (cents) 6,8 157,3 147,3
Earnings per ordinary share (cents) 74,4 147,3
Headline earnings reconciliation
Attributable earnings 40 133 68 144
Amortisation of goodwill 18 854
Exceptional items of a capital nature 37 583
Capital profit from associate (12 096)
Loss on sales of assets 371
Headline earnings 24,5 84 845 68 144
Consolidated balance sheet
2001 2000
R'000 R'000
Equity and liabilities
Ordinary shareholders' interest 467 501 269 408
Outside shareholders' interest 851 2 984
Deferred tax liability 1 941 71
Non-current liabilities
- Non-interest bearing 1 200 18 000
- Interest bearing 117 621 74 967
Current liabilities 624 574 203 042
Trade creditors 117 677 43 183
Other creditors and accruals 217 174 54 270
Bank overdrafts 169 313 27 776
Taxation 14 034 12 774
Short-term portion of
long-term debt
- Non-interest bearing 51 462 51 999
- Interest bearing 54 914 13 040
1 213 688 568 472
Assets
Property, plant and equipment 236 910 166 853
Intangibles 358 883
Deferred tax asset 61 949 17 133
Financial assets 66 320 39 884
Non-current assets 3 206
Current assets 486 420 344 602
Inventory 37 692 42 256
Trade debtors 298 305 122 488
Other debtors 42 340 29 279
Short-term financial assets 18 000
Cash resources 90 083 150 579
1 213 688 568 472
Number of ordinary shares in issue
(excluding treasury shares) 66 715 47 122
Summarised consolidated cash flow statement
2001 2000
R'000 R'000
Cash generated from operations before
working capital changes 152 545 85 543
Increase in net working capital 32 333 28 037
Cash generated from operations 120 212 57 506
Net finance (costs)/income (14 262) 11 860
Taxation paid (25 836) (18 260)
Cash flow from operating activities 80 114 51 106
Cash flow from investing activities (257 392) (108 462)
Cash flow from financing activities (24 834) 48 303
Net decrease in cash
and cash equivalents (202 112) (9 053)
Cash and cash equivalents at
beginning of period 122 803 131 856
Translation difference on
opening cash position 79
Cash and cash equivalents at
end of period (79 230) 122 803
Statement of changes in equity
Non-distri- Distri-
Share Share butable butable
capital premium reserve reserve Total
Balance at
30 June 2000 290 41 574 192 227 352 269 408
Net profit
for the year 40 133 40 133
Prior year
adjustment (702) (702)
Issue of
capital 165 219 235 219 400
Less treasury
shares (45) (59 822) (59 867)
Foreign currency
translation
reserve (871) (871)
Balance at
30 June 2001 410 200 987 (679) 266 783 467 501
Introduction
In the last year, MGX has built on its strong foundations and has positioned
itself to provide its clients with enhanced products and services to manage
ever-expanding amounts of information. MGX's value proposition to its
clients addresses increased efficiency, business cost containment and
management of business risk. At the core of this business proposition are
five fundamentally related value domains that are structured to meet the
above requirements and deliver measurable business outcomes. They are
storage management, content management, business availability management,
enterprise value management and software development. These domains address
both the IT and the business efficiency of the organisation, in a coherent,
cohesive and complementary way.
MGX's acquisition of CCH, effective 1 March 2001, was a significant part of
MGX's strategy for expanding the group's range of solutions, and thereby
ensuring that MGX is able to offer innovative and increasingly relevant
products and services to its clients. The combined resources of MGX and CCH
provided MGX with the added skills, technologies and product sets to achieve
the group's strategic objectives in an accelerated timeframe. On a
divisional level, the merger brought complementary expertise rather than
duplicated activities in almost every area of operation, and increased the
group's resources and infrastructure for servicing its clients.
Trading results
The results for the year under review include the pre-existing MGX
operations for the full year and include the CCH businesses acquired for the
four months commencing 1 March 2001.
Operating income grew 77,4% from R73,0 million to R129,5 million, and
headline earnings rose 24,5% from R68,1 million to R84,8 million, on a 92,8%
increase in revenue to R885,0 million. On a per share basis earnings before
interest, tax, depreciation and amortisation (EBITDA) increased by 58,7%
from 186,2 cents to 295,4 cents. Headline earnings per share grew 6,8%, from
147,3 cents to 157,3 cents. The tax rate of 29% was higher than the
anticipated 27% and had the effect of reducing headline earnings per share
by 4,2 cents.
In the main, MGX's pre-existing divisions achieved or exceeded their
budgets, with particularly robust performances from MGX Storage Solutions,
Metrofile, Drive Control Corporation and MGX's UK operations. The Sun, BMC
and Software Futures divisions of CCH all achieved their targets for the
year.
However, the results reflect the negative short-term effects of the
acquisition of CCH, which were communicated to shareholders, and the
difficult trading conditions experienced by certain of CCH's operations
during the year.
The effects of the CCH acquisition can be seen in the drop in interest
received and the rise in interest paid. The change in the operating margin
from 15,9% to 14,6% reflects the broadened mix of the businesses and the
higher than anticipated restructuring and integration costs. Management is
confident that the integration of the CCH businesses will, within a short
time, make a significant contribution to MGX's growth.
Positive cash flow from operating activities of R80,1 million, compared to
R51,1 million in the previous year, was generated from headline earnings of
R84,8 million, and is indicative of the continued strong cash generating
capacity of group operations. With interest-bearing debt at R234 million,
the group's debt:equity ratio has increased to 33%. This predominantly
reflects CCH's indebtedness taken on with the acquisition, including all
CCH's debt that was previously financed off balance sheet.
The exceptional items largely comprised of a write-down of the investment in
Maxtec of R16,5 million and a loss on disposal of Optiplan of R17,4 million.
Board appointments
MGX's board has been extended and strengthened with several new appointments
during the year. Patrick Landey joins MGX as non-executive deputy chairman.
Aletha Ling has been appointed from CCH, with responsibility for IT strategy
and new business development. Thierry Dalais and his alternate, Eduardo
Garcia, have been appointed in non-executive capacities. Michael Judin and
Graham Hamilton resigned during the year.
In the light of the recently published King II report on corporate
governance, one of the key tasks of the board is to review the group's
existing corporate governance structures and to ensure that MGX continues
with its objective of achieving a high level of compliance in this regard.
EC-Hold Limited (EC-Hold)
MGX is continuing to pursue its rights in response to the Securities
Regulation Panel's (SRP) ruling that there was an affected transaction
between a Price family trust and MGX, as concert parties, regarding the
purchase of EC-Hold shares. MGX unequivocally reiterates that it did not
breach the regulations of the Securities Regulation Code on Takeovers and
Mergers, and the group will continue to defend itself against the ruling to
the highest level of redress.
In this regard, shareholders' attention is drawn to the announcements
published on 2 August 2001 and 10 August 2001. With effect from 1 July 2001
MGX increased its shareholding in EC-Hold from 34,4% to 72,5% at a maximum
cost of R1,00 per EC-Hold share. Based on a worst-case scenario, the
implications of the current SRP rulings would be to increase the cost of
MGX's investment in EC-Hold by less than R30 million.
Strategic overview and prospects
The MGX group is strategically stronger following the acquisition of CCH and
the integration of the two organisations. In the process, the group has
developed a powerful, shared vision for the future.
Independent forecasts for the next few years continue to show that the
information explosion will accelerate on both digital and non-digital media.
Organisations cannot easily control or delay the daily onrush of new
information generated in all their business activities. With business
information emerging as the key strategic asset of the 21st century, the
acquisition of CCH has positioned MGX to take broader advantage of the
opportunities presented by an organisation's need to manage this asset and
turn it into an effective strategic tool. Building on the prior strengths of
the two organisations, MGX now has a comprehensive suite of solutions for
clients and is well positioned in this growth sector.
Despite the volatility of the market and the redefinition of MGX's strategic
focus, staff attrition was lower than industry averages. During the year the
operations of two large groups were brought together, which, combined,
comprise nearly 2 500 people. All have responded with commitment to the task
of ensuring MGX's continued leadership and success in a dynamic and fast-
paced industry, with their dedication to a good work ethic and focus on
service excellence for customers.
Management has taken account of the rapid decline in global activity in
recent months, particularly in the IT and telecommunications sectors.
However, MGX has always adopted a conservative structure and continues to
source 40% of its revenue from an annuity base.
The group's focus in forthcoming periods will also be on managing costs,
cash flow and working capital. With MGX's ability to generate positive
operating cash flow, it is a priority to achieve consistent and meaningful
debt reduction over the coming reporting periods.
MGX has a substantial pipeline of large future projects, based on the
group's ability to offer strategically relevant solutions to its clients.
This pipeline is indicative of the group's success in marketing its
solutions on the basis of delivering measurable business outcomes and should
underpin the group's growth prospects. On this basis, and in the absence of
unforeseen circumstances, we expect to achieve real growth in earnings per
share in the current year.
Dividends
The policy of the group remains that the interests of shareholders are best
served if MGX does not pay a dividend as cash generated will be used to
reduce debt as discussed above.
Ronnie Price Chris Hills Rory Shirley
Chairman Chief Executive Group Financial Director
15 August 2001
Directors: R S Price* (Chairman), P A Landey* (Deputy Chairman) C S Hills
(Chief Executive), D E Baloyi*, R T Dalais* (Alternate: E Gutierrez-
Garcia*), A E Ling, D J J McMahon, R D Shirley, D C L Wassung*, N J Webster,
L Wengrowe*
(* Non-executive)
www.mgxgroup.com
For further information please contact our marketing director at +27 (11)
804 3772 or mgx@mgxgroup.com
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