Exciting growth against economic challenges

MICROmega Holdings Limited released buoyant financial results on 25 May 2017, compared to other markets and companies experiencing flat or downward results given the present broad macro-economic environment.

“We are very satisfied with the results and the performance,” said MICROmega chief executive Greg Morris. “Despite the difficulties the South African economy has to endure, most of the headline earning growth has been organic, with the exception of a minor contribution in respect of the small acquisition of the food and beverage certification laboratories from the CSIR in September 2016.

“Subsequent to year end we acquired the LexisNexis hygiene inspection business and this now makes us number two in South Africa in this sector. The CSIR Food and Beverage Laboratories business was incorporated into Aspirata Testing and Certification Services (Pty) Ltd.”

The company operates in four primary sectors, according to Morris: testing, inspection and certification; IT, specifically enterprise management systems, 80% of which is in the public sector; water management technology, and education and training business.

Water management

“We foresee that the highest growth will come from water and this is proving an exciting part of the business, with so many new developments to help water-scarce countries to preserve this vital natural asset,” says Morris.

“We see what is happening in South Africa with the drought and more important is the focus on water globally.”

“By 2020, South Africa will exceed supply and availability. We have positioned ourselves to provide technologies to manage water supplies and make water happen. Rather than turning off municipal water to control usage we can limit it at certain hours to maximum volumes and provide users with prepayment meters.”

Morris says MICROmega already has 1.2-million units on the ground already and targets installing a million units per year.

“We are pioneers of this technology and have two of the largest organisations providing their offering as partners- being Honeywell and ITRON. Both are huge companies and it is both an accolade and a comfort to have the right heavyweight partners to do business with internationally.

“We already have proof of concepts in Mexico, Colombia, Brazil, Tanzania, Nigeria, Djibouti, and have clients in the UAE, Latin America, the United States and Africa with pilots in Zambia, Kenya and Zimbabwe. It is very exciting for the business.”

Established in 2001, MICROmega’s Utility Systems (USC) currently commands around 90% of the electronic flow limitation market in the SADC region. Its prepaid water metering system was the first to be approved by the Standard Transfer Specification Association (STS) and it has a large, proven deployment. 2016 was a breakthrough year with regard to its market acceptance, both locally and internationally

The opportunities that the international marketplace provides for proven South African-developed technology in assisting with the global water crisis are significant.

“Water is proving our highest growth asset, but our largest contributor to earnings is coming from IT with its higher margins.”

Embedded position

Morris attributes MICROmega’s ongoing success to being a very established company with a track record of finding and investing in high growth assets.

“We enjoy an embedded position. We are one of only five recognised providers of the Municipal Standard Chart of Accounts (mSCOA). Our NOSA businesses have had a strong growth pattern over the last decade, annually equipping over 90 000 individual learners and professionals, and more than 4 000 organisations to ensure a safe and compliant working environment in emerging markets around the world.

“The last year saw NOSA’s learner base decline marginally as a result of the South African economy continuing to stagnate. In recognition of the likelihood that this will continue in the present year, it was deemed appropriate to take some of the cost out of the businesses, while simultaneously using NOSA’s strong brands to exploit additional markets, the benefits of which should be felt in the coming year.”

Morris says that the company now employs over 2,000 people of “incredibly high quality with good business-savvy and technical depth, with an incredible ability to communicate.

“The trick is balancing depth and academic knowledge. We treat each other as equals and this is part of our culture. In an autocratic culture, everyone looks up and down at each other and not at each other. It is very important to engender a happy environment where generally staff morale is high.

“Our workforce is diverse and not everyone has a qualification behind their name, but they are very important as they are an integral part of our process.

“Again, the resilience of our business model, whereby we develop and own our intellectual property has also proved itself capable of delivering well above market growth in earnings and dividends for our shareholders. We have stressed the importance of this in prior years and it is pleasing to continue to deliver on this expectation,” concludes Morris.

MICROmega’s financial results for the year ended March 31 2017 indicate a headline earnings per share (HEPS) of 157.76 cents, reflecting an increase of 28%, compared to the HEPS of 123.43 cents for the year ended 31 March 2016. The earnings per share (EPS) is 155.59 cents, reflecting an increase of 20%, compared to the EPS of 129.64 cents for the year ended 31 March 2016. The lower growth rate in EPS, when compared to the increase in HEPS is mainly attributable to the disposal of subsidiaries during the year.

During the 2016/17 financial year, the group disposed of its 100% interest in MECS Africa (Pty) Limited for R16.5-million, which resulted in a profit of R6.6-million recorded in profit and loss, it sold its 100% interest in MICROmega Securities (Pty) Limited for R22.1-million, which resulted in a loss of R6.3-million recorded in profit and loss and it disposed of its 50% interest in SAICMB Australia (Pty) Limited for R2.9-million, which resulted in a profit of R1.1-million recorded in profit and loss and the recycling of R0.6-million to non-controlling interest in equity.

The company disposed of the businesses that have, in recent years, been unable to contribute to the overall growth of the group and the decision to divest from these businesses secured the release of working capital that can be better deployed in its higher growth assets which it anticipates having a positive impact on all its ratios in the current financial year.

The training and risk management element of the business (under online learning company TTRO) also had a strong year, with growth in Saudi Arabia.

See more about the results here.

As seen on the Mail & Guardian