European figures cast pall on Comparex results

Comparex`s results for the year to end-May highlight the dismal performance of the European operations, which the group is disposing of in a management buy-out.

Comparex has split its results into continuing operations (the Comparex Africa business) and discontinuing operations (the European business).

A recent institutional shareholder-led boardroom coup resulted in a proposal to shed the European arm as it was perceived that the operation was eroding shareholder value.

The latest results show that the perception was not without basis, as the European business incurred an attributable loss of almost R410 million. A headline loss of R279.9 million resulted in an overall headline loss of R59.1 million for the group.

Acting CEO Peter Watt says revenue from the European operations fell by 23% in local currency, but rand weakness resulted in a marginal increase being shown on the income statement. The decline in revenue, together with intense pressure on margins, led to a trading loss of R207.4 million.

The European headcount was cut from 1 290 to 1 062 at the end of the financial year. Retrenchment costs amounted to about R93 million.

The dismal European results overshadow the good performance of the African business which, if the proposed disposal of the European arm goes through, will be the only Comparex operation.

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Revenue from the African business remained constant, although gross margins deteriorated slightly, resulting in a 14% decline in trading profit to R164.1 million.

During the second half the African operations equalled their first-half performance, exceeding the board`s expectations.

"A particularly pleasing aspect of this was the quality of the revenue," Watt says. "More than 70% was generated from longer-term services and annuity activities and less than 30% from product-related activities."

Investors have expected that a special dividend is to be paid from the group`s cash resources, R1.77 billion of which sits in the African operations.

But the group says the board does not intend to propose a dividend until the proposed disposal of the European operations has become unconditional and the future strategy of Comparex Africa has been resolved. The dividend policy is to be revisited at that point.