A scathing attack was delivered today against former board members of troubled IT group MGX, accusing them of strategic incoherence, poor corporate governance and ill-conceived acquisitions.
MGX temporary CEO Peter Flack was quoted in an announcement on the JSE`s Stock Exchange News Service yesterday announcing that the group had secured a R100 million syndicated loan facility that will provide working capital until the end of the current financial year in June 2003.
After praising the presentations he had received from the group`s individual business units, Flack said: "It is clear that MGX`s problems have their origins not in its operations but at its centre, where strategic incoherence has resulted, among other things, in ill-considered acquisitions and corporate governance lapses."
In a telephone interview, Flack says MGX`s individual business units were run by well-motivated people who understood their business and worked to set mandates and mission statements.
"Unlike most other troubled companies, MGX`s problems lay at the core rather than at the subsidiaries," he says.
MGX has seen a spate of resignations and board reshuffles this year. It began with the resignation of its former executive chairman and founder, Ronnie Price, who left in order to separate the post of chairman and chief executive. In November former CEO Chris Hills took leave of absence for health reasons and former Computer Configurations Holdings CEO Aletta Ling resigned to take a two-year sailing sabbatical. In October former financial director Rory Shirley announced his resignation and was immediately replaced by Roy Midlane.
Hills said he had not seen the statement and declined to comment. Price said he was considering his response, but had not commented by time of publication. Ling could not be reached.
Flack says he has been contacted by former MGX directors about the statement, but refused to say who or what they said. "You will have to speak to them. But if the cap fits then they must wear it."
He says it is too early to tell if shareholders and the current MGX board may have recourse to former directors.
This has been a turbulent year for MGX as it necessitated a forensic audit of its R240 million purchase of CCH, the results of which have not yet been made public. The sale of Software Futures to Paracon, originally a CCH subsidiary, fell through in September, and the deal could have netted MGX R100 million.
A ruling still awaited from the Securities Regulation Panel concerning the EC-Hold purchase may cause MGX to increase its investment by R30 million in a worst-case scenario. MGX now owns 89% of EC-Hold after purchasing the shares owned by the Mandy Rebecca Price Trust.
In the year to 30 June, MGX posted a 70% increase in revenue to R1.5 billion with a 55% increase in operating income to R227.628 million. This led to a 17% increase in headline earnings per share (excluding discontinued operations) to 150.9c from 138.9c.
However, the interest and financing costs associated with the CCH purchase, which was effective from 1 March 2001, weighed on the results. It was a major contributor to increasing net financing costs to R45.842 million from a previous R14.262 million, and once combined with taxation of R33 million (steady from the previous year), it left minority shareholders` interest at minus R6.184 million from a previous R684 000.
Attributable earnings fell to R8.355 million from R30.244 million the year before. Operating margins were at 12.4% compared with 13.5% last year. Headline earnings rose 16.6% to R87.3 million.
Share