MGX Holdings has reported an interim attributable loss of R457 million. Interim CEO Peter Flack says the group could be rebuilt over two to three years, but its survival depends on support from bankers and financiers.
Flack, appointed in November last year to head a turnaround operation at the group, says the deterioration of MGX`s performance in the latter half of 2002 was much worse than had been anticipated when it released a profit warning four months ago.
Since then the decline has continued, mainly because of the continuing weakness of the IT sector and the negative market sentiment towards MGX.
"In spite of these challenging circumstances, we have made reasonable progress in the first 120 days of the recovery process," Flack says.
"Among other things, we`ve cleaned up the financial housekeeping, established proper controls and procedures and formed a clear view of the condition and prospects of the businesses. We continue to think that, provided its debt can be restructured, MGX could be rebuilt as a smaller but sustainably profitable company over the next two to three years."
The group received a R100 million lifeboat in the form of a revolving credit facility, repayable by 17 June. Of this, R47 million is being used at present.
Flack says the lifeboat has eased short-term funding pressures so some of the MGX businesses could be sold in an orderly manner to lighten the debt load. cdp Africa and enTechnologies have been sold for R12 million.
Agreements in principle have been reached for the sale of Business Continuity Solutions, Enterprise Solutions and MGX`s 50% stake in Drive Control Corporation. Some of the company`s properties have also been put up for sale.
"The bottom line is, however, that in the current market the sale of these assets will not reduce the debt at the centre to a level where the remaining business could service it," Flack says.
"This means that MGX`s stakeholders essentially have two options: sell all the assets or restructure the group and its debt. The board favours the latter course and has made proposals in this regard to MGX`s bank consortium and negotiations are at an advanced stage."
The company says talks with the Securities Regulation Panel (SRP) over the controversial EC-Hold acquisition have not yet resulted in a mutually acceptable resolution to the matter.
"In the worst-case scenario, MGX would have to pay out R30 million to increase its investment in EC-Hold, which would in turn resolve the dispute with the SRP."
MGX has also made progress in talks with a prospective black economic empowerment partner, Vulisango Holdings, regarding its participation in two of the group`s businesses.
The bottom line is, however, that in the current market the sale of these assets will not reduce the debt at the centre to a level where the remaining business could service it.
Peter Flack, interim CEO, MGX Holdings
Flack admits that "the continuation of the group as a going concern remains contingent on the continued support for the group by its bankers and financiers".
The group`s revenue for the six months to 31 December slipped 8.5% to R688.84 million, although the group incurred a net operating loss of R87.39 million, compared with a year-earlier profit of R53.57 million.
A headline loss of 216.7c a share compares with headline earnings of 73.2c a share in the six months to end-December 2001.
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