Wrap Text
Reviewed Condensed Consolidated Results for the Year Ended 30 June 2014
POYNTING HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number 1997/011142/06)
Share code: POY ISIN: ZAE000121299
(“Poynting” or “the Company” or “the Group”)
REVIEWED CONDENSED CONSOLIDATED RESULTS FOR THE YEAR ENDED 30 JUNE 2014
GROUP COMMENTARY
Headlines
Revenue increased by 47% to R132m
Cash flows from operating activities up 23% to R7.9m
NAV/share up 63% to 84.2 cps
Tangible NAV/share up 3% to 38.1 cps
Export revenue up 71% over last year, with 57% of group revenue earned now outside of South Africa.
Defence & Specialised increased profit after tax by 74% from R9.1m to R15.8m
Commercial & CCS disappointed recording a combined loss of R8.6m
African Union Communications Proprietary Limited (“Aucom”) full year profit of R13.7m is above profit
warranty target of R11.0m.
Reported EBITDA declined from R14.6m in 2013 to R3.6m in 2014, but adjusted EBITDA (refer below) of
R38.2m reflects group growth
The financial statements are significantly distorted by the requirements of IFRS arising from the
Aucom acquisition. This results commentary should be read with care to understand the underlying
company performance.
INTRODUCTION AND COMPANY OVERVIEW
Our business is focussed on four technology segments. We also report separately on our new business
development “SkunkWorks” unit.
Defence & Commercial Cellular Digital New Product
specialised cellular end Coverage Television Development
antennas user antennas Solutions (“DTV”) (“SkunkWorks”)*
(“DS”) (“Commercial”) (“CCS”)
Companies/brand Poynting Poynting Poynting CCS Aucom Various new
s and divisions Defence and Commercial division (and concepts in
included in Specialised Division and RNS once development or
this segment Division Poynting successfully proof of concept
including Direct concluded) stage
Radiant
Antennas
Markets Defence Cellular end Cellular TV and Radio Potentially
system users, machine operators and Broadcasters products within
integrators, to machine cellular existing segments
homeland (“M2M”) infrastructur (VeriPoynt,
security, integrators e providers AirPoynt) but can
spectrum also exploit new
monitoring markets e.g.
Household TV
consumers
(DigiAnt/SunPoynt)
Major regions Europe, MEA, RSA, Europe RSA and RSA and Africa Initial interest
USA and Australia Africa from RSA and SADC
countries
Products/ Specialised 3G/LTE/Wi-fi Micro base Design, supply Develop new
services broadband consumer station and integration products and IP for
jamming, antennas and products of DTV existing divisions
monitoring M2M antennas distribution, and new growth
and Multiscreen and areas
communication Over The Top
antennas (OTT) systems
Business model Design, Design, Design, Design system, Develop new
manufacture manufacture manufacture source equipment products and
and sales of and sales of and sales to and register IP,
antenna antenna integrators implement/integr initial
products products and cellular ate for manufacture, market
highly operators customers testing and early
customised adopter sales. IP
for clients licensing
2014 annual R’m R’m R’m R’m R’m
turnover 76.6 32.4 3.8 Full year 0.1
103.8
PAT 2014 15.8 (4.6) (4.0) Full year (3.0)
13.8
Registered The intellectual property portfolio grew from 42 to 60 registered designs,
Intellectual trademarks and patents.
Property
Opportunities Penetrate US Capitalize on Address Assist License DigiAnt
defence explosive dramatic broadcasters production
market, growth in increase in with migration internationally.
further LTE/4G demand for to digital TV Provide solar TVs
expand into rollouts/usage small and radio across to consumers
military ; Sign up cellular base Africa. without access to
communication distributors stations electricity.
market, for much (number of Target large Supply DigiAnt TV
increase larger base stations expected antenna with demand
number of penetration of expected to increase in driven by digital
system international increase by private content migration in
integrator markets factor of 10 providers, pay Africa.
customers over the next TV companies and
5 years) private
broadcasters.
The designation "skunkworks", is widely used in business, engineering, and technical fields to
describe a group within an organization given a high degree of autonomy and unhampered by
bureaucracy, tasked with working on special projects.
RESULTS OVERVIEW
The financial results this year have a number of IFRS reporting requirements and once off transaction
costs which present a very confusing and unrealistic picture to investors.
The single biggest distortion of the results is the complex accounting treatment of the African Union
Communications Proprietary Limited (“Aucom”) acquisition:
On 28 February 2014 the shareholders approved the issue of 66m shares in Poynting Holdings at 75c per
share for the acquisition of Aucom, which amounted to a purchase consideration of R49.5m, as valued
at 1 July 2013.
The sellers of Aucom shares agreed to a three year profit warranty. If they do not meet the profit
target, the 66m shares will adjust downwards, to a minimum 16.5m Poynting Holdings shares.
In terms of IFRS3 the transaction has to be accounted for as both equity (the minimum 16.5m Poynting
Holdings shares payable) and a liability (the 49.5m Poynting Shares we could potentially claw back
from the sellers together with the possible outperformance payment)
The Aucom acquisition was contractually concluded in early July 2013 at a purchase consideration of
66m shares with a market value of 75c at that time. IFRS3 mandated an effective date of 28 February
2014 by which time the Poynting share price increased to 271c. IFRS3 requires the asset to be valued
at this share price resulting in an unrealistic value of R178.9 m. The year-end valuation of Aucom
amounted to R82m (compared to R49.5m at the time of concluding the transaction) and an impairment of
R95m was required. The impairment reflects as an expense and reduces profit by this amount.
The 49.5m shares which are held back in support of the profit warranty was recognised as a
“liability” of R134.1m even though the shares to settle that liability are already issued. The
increase in share price from 271c to 290c between March and June 2014 generated a further R9.4m
increase in the liability which is recognised as a “loss”. This liability will continue to be valued
through the income statement in line with the movement of the share price until all profit warranties
are met. Shareholders are advised to expect further volatility in earnings for the next two
financial years as any increase in the share price will result in accounting losses being recognised.
The group incurred transaction costs totalling R3.4m in respect of the Aucom acquisition (and the
issue of the Preference Shares) which under IFRS had to be expensed, although both expenses are “once
off” and will be of enduring benefit to shareholders.
In summary: Poynting made an acquisition, on favourable commercial terms, which is already showing
good performance. This is however not reflected in the IFRS financial statements as the 287% increase
in the Poynting share price resulted in unrealistic accounting losses and a balance sheet which does
not accurately reflect the financial position of the group.
In an attempt to provide a more realistic reflection of Group performance, the table below provides
an “Adjusted EBITDA” and “Adjusted PAT”. The adjusted figures were calculated by excluding the
distortions referred to above as well as consolidating Aucom results for 12 months instead of the 4
months as required by IFRS. The adjusted “realistic” results demonstrates that, despite the
disappointing results from Commercial and CCS, the Group is much better positioned than in the past
and provides a good base for growth going forward.
Adjusted* Adjusted*
Turnover Turnover EBIDTA EBIDTA EBITDA PAT PAT PAT
2013 2014 2013 2014 2014 2013 2014 2014
(Rm) (Rm) (Rm) (Rm) (Rm) (Rm) (Rm) (Rm)
Defence 47.3 76.6 13.3 23.2 23.2 9.1 15.8 15.8
Commercial 36.1 32.4 3.7 (2.7) (2.7) 0.3 (4.6) (4.6)
CCS 6.3 3.8 (2.4) (5.3) (5.3) (2.2) (4.0) (4.0)
Skunkworks - 0.1 (0.1) (3.6) (3.6) (0.3) (3.1) (3.1)
DTV (Note 1) - 19.2 - (8.0) 13.8 - (111.3) 13.8
Fair value
adjustment of
Aucom contingent
consideration
shares (Note 2) 9.4 -
Acquisition
costs and share
issue expenses
(Note 3) 3.4 3.4
TOTAL 89.7 132.1 14.6 3.5 38.2 6.9 (107.2) 21.3
* The adjusted EBITDA and PAT show normalised results to provide a realistic comparison to 2013. The
following adjustments were made:
Note 1: Aucom results consolidated for 12 months instead of 4 months as required by IFRS. The audited
12 month EBITDA for Aucom was R18.5m and full year PAT was R13.7m.
Note 2: Add back fair value adjustment of R9.4m due to increase in share price between 1 March 2014
and 30 June 2014
Note 3: Add back of once off transaction costs of R3.4m in respect of the Aucom transaction and the
issue of Preference Shares.
R' m 2009 2010 2011 2012 2013 2014
EBITDA (4.3) 10.3 12.3 14.8 14.6 3.5
Adjusted EBITDA - - - - - 38.2
Adjusted balance sheet indicators are also provided to give a better reflection of company financial
position:
Balance sheet 2013 (restated) Rm 2014 (actual) Rm 2014 (adjusted)* Rm
Equity 48.6 12.3 146.5
TNAV 34.6 (67.8) 66.3
* the adjusted figures exclude the acquisition reserve of R134.2m
The growth in adjusted equity reflects the issue of shares to PSG Private Equity for cash and to the
sellers of Aucom. The increase in adjusted tangible net assets is largely due to the acquisition of
Aucom into the group which added R22.2m of assets.
2009 2010 2011 2012 2013 2014
Tangible NAV per ord share (cents) 14 18 25 33 37 38
NAV per ord share (cents) 30 33 36 44 37 84
Commercial and CCS cost shareholders money but cash generation remained strong at DS and DTV
resulting in the overall group reporting higher cash generated by operations of R7.9m compared to
R6.4m last year.
Previous year restatement
Poynting Antennas had previously performed product development work for Aucom before a possible
transaction to acquire Aucom was considered. Since this product falls into the consumer market, Aucom
felt it could be better exploited by Poynting Commercial division and transferred the existing
Intellectual Property on the SunPoynt TV to Poynting in exchange for sharing profits from future
sales of the product. Poynting previously accounted for this work as income - a reimbursement of
product development expenditure - but following the acquisition of Aucom it transpired that this had
not been accounted for correctly which required restatement of the accounts.
BUSINESS OVERVIEW
Despite the improved financial position and performance as illustrated when recalculating adjusted
PAT and adjusted EBITDA, we still consider that the overall Group profitability for the 2014
financial year should have been better - the losses in the Commercial and CCS divisions was
disappointing.
Defence & Specialised
The Defence Division delivered exceptional growth with profit after tax increasing by 74% on the
prior period. This was somewhat assisted by the weakness in the Rand, due to the high ratio of export
orders which are denominated in currencies other than the ZAR, whilst maintaining an almost
exclusively South African cost base. The division continued to grow credibility in its various
markets, which results in less dependence on individual customers.
DS historic 5 year performance is summarised below:
R'm 2009 2010 2011 2012 2013 2014
Revenue 17.5 30.5 37.1 34.7 47.3 76.7
Profit after tax 3.0 7.2 8.5 5.7 9.1 15.8
DTV
DTV performance was better than expected with Aucom reporting a R13.7m full year profit which was 24%
above the profit target level of R11m for the year. Although the accounting treatment did not allow
inclusion of the full 12 months in Group results we are nonetheless satisfied with the performance of
this acquisition and market conditions for DTV infrastructure rollout in Africa remain robust. Aucom
has strengthened its management team in areas of finance and operations which should ensure that
their Chief Executive Officer and his experienced sales team can spend more time on new business
development.
CCS
CCS is a start-up division in its own right. Now in its 3rd year, we can see that there is increased
interest for the Subterranean (“SubT”) base station which was a product ahead of its time, with the
major cellular operators expressing interest only recently. The group continued its investment in
product development to ensure relevance to the market, which resulted in a loss of R4.0m for the
year. Poynting had its first minor success with SubT trials with Vodacom. The City of Johannesburg
awarded a tender to several companies to rent and use Johannesburg street light poles as mini base
stations. Operators such as Vodacom, MTN, CellC and others are planning to make use of this
opportunity to deploy in excess of 1000 mini base stations to improve customer experience for
Johannesburg cell phone users.
Corrective actions to improve CCS profitability:
CCS expenses and resources are strictly monitored to ensure economic use. Further development will
be limited and product completion will be based on confirmed orders.
Ongoing discussions with big role players in the industry are underway and currently undergoing
trials.
Commercial
The Commercial division restructured its South African sales channel, with a split of Direct-to-
Reseller and Direct-to-Consumer activities. The move of commercial product production from South
Africa to China also absorbed management time, resulted in increased operational costs and stock
write offs. Revenue declined by 10% mostly due to reduced sales to Europe.
The group has undertaken the following actions to improve Commercial profitability:
A renewed focus on driving revenue, and developing focussed sales channels.
Addressing sales declines in the European market
Focus on supplying 4G/LTE products which are well differentiated and IP protected.
PROSPECTS
The Group profit potential is indicated by considering the historical annual profitability of the
different segments.
Commercial and CCS performance this year was disappointing and getting these divisions to breakeven
and back to profitability is a priority for the year ahead.
We anticipate further growth in our profitable segments and considerable reduction in losses in the
loss making segments.
DS started the 2015 year with 50% higher order book than 2014 which suggests continued revenue
growth.
Aucom should benefit from the potentially large African DTV rollout projects and vertical expansion
of product offering.
Commercial will capitalise on 4G/LTE rollout by the network operators increasing demand for our
products.
The Johannesburg Light Pole initiative may allow CCS to gain traction, and the cost base has been
significantly reduced.
Skunkworks have novel and Intellectual Property rich products and the DTV product range has broad
consumer market appeal. The product development activities currently in “SkunkWorks” have some
products reaching maturity which will hopefully exploit real market demand.
The RNS acquisition is nearing completion and our current assessment is that they are capable of
achieving their profit targets. RNS fits the group well with good synergies in a number of segments
and possible project and cross selling opportunities.
We maintain an acquisition pipeline and we are engaging with several targets locally and
internationally. The focus will be to secure a European or USA footprint to support the DS product
range and distribution potential, to continue to grow European customer base for Commercial, and
further identifying companies which fit our market profile and provide synergies to the Group.
CONDENSED CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2014
Reviewed Restated
30-Jun-14 30-Jun-13 *
R'000 R'000
Revenue 132,126 89,743
Cost of sales (61,989) (30,010)
Gross profit 70,137 59,733
Operating expenses (77,072) (52,926)
Trading Operating (loss) / profit (6,935) 6,807
Investment income 1,014 488
Fair value adjustments (9,404) -
Impairment of goodwill (95,046) -
Finance costs (162) (58)
(Loss) / profit before taxation (110,533) 7,237
Taxation 3,375 (277)
(Loss) / profit for the year (107,158) 6,960
Other comprehensive income - -
Total comprehensive income (107,158) 6,960
* Prior year restated - refer Note 4
NOTE 1 - Reconciliation of (Loss) / Profit for the Year to Headline Earnings
(Loss) / profit for the year (107,158) 6,960
Impairment of goodwill 95,046 -
Headline (loss) / earnings attributable to ordinary
shareholders (12,112) 6,960
Weighted average number of ordinary shares in issue 105,484,979 93,921,053
Weighted average number of diluted ordinary shares in
issue 113,742,087 94,711,843
Basic earnings per ordinary share (cents) (101.59) 7.41
Diluted earnings per ordinary share (cents) (85.94) 7.35
Headline earnings per ordinary share (cents) (11.48) 7.41
Diluted headline earnings per ordinary share (cents) (2.38) 7.35
NOTE 2 - Reconciliation of Adjusted Headline Earnings
Headline (loss) / earnings attributable to ordinary
shareholders (12,112) 6,960
Fair value adjustment of contingent consideration
shares 9,405 -
Acquisition costs after tax 3,424 -
Adjusted Headline earnings attributable to ordinary
shareholders 718 6,960
Adjusted Headline earnings is calculated by modifying headline earnings for the fair value adjustment
of the contingent consideration shares and acquisition costs after tax.
Adjusted Headline earnings per ordinary share (cents) 0.68 7.41
Adjusted Headline earnings per share is calculated by dividing adjusted headline earnings by the
weighted average number of ordinary shares in issue.
CONDENSED CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
Share (Accumulated
based loss)/
Share Share payment Acquisition Retained Preference Total
capital premium reserve reserve earnings shares
R'000 R'000 R'000 R'000 R'000 R'000 R'000
Balance at
01 July
2012 4 24,375 150 - 14,515 - 39,044
Profit for
the year as
previously
reported 9,840 9,840
Prior year
error (2,880) (2,880)
Profit for
the year as
restated 6,960 6,960
Issue of
shares 1 2,639 - - - - 2,640
Share
options
forfeited /
exercised - - (27) - - - (27)
Balance at
01 July
2013
restated 5 27,014 123 - 21,475 - 48,617
Profit for
the year (107,158) (107,158)
Issue of
shares for
cash 1 25,279 - - - - 25,280
Issue of
shares -
business
combination 3 178,857 - (134,145) - - 44,715
Issue of
preference
shares
(Note 3) - - - - - 889 889
Balance at
30 June
2014 -
reviewed 9 231,150 123 (134,145) (85,683) 889 12,343
Note 3 - Issue of 20.4m preference shares at R2.50, valued at R51 million, of which R0.9 million is
classified as equity
CONDENSED CONSOLIDATED STATEMENT
OF FINANCIAL POSITION AS AT 30 JUNE 2014
Reviewed Restated
30-Jun-14 30-Jun-13 *
R’000 R’000
Assets
Non-Current Assets
Plant and equipment 6,778 4,976
Goodwill 55,457 2,207
Intangible assets 24,707 11,767
Investment in joint venture 2,964 -
Deferred tax 280 -
90,186 18,950
Current Assets
Inventories 23,641 12,427
Other financial assets 5,630 171
Current tax receivable 3,191 413
Trade and other receivables 30,994 18,141
Cash and cash equivalents 85,871 14,402
149,327 45,554
Total Assets 239,513 64,504
Equity and Liabilities
Equity
Equity attributable to owners of the parent
Share capital & share premium 231,159 27,019
Preference share equity 889 -
Share-based payment reserve 123 123
Acquisition reserve (contingent consideration) (134,145) -
(Accumulated loss) / Retained income (85,683) 21,475
12,343 48,617
Liabilities
Non-Current Liabilities
Loans and borrowings 114 -
Preference share liability 50,111 300
Liability for contingent consideration 143,550 -
Other financial liabilities - 4,000
Deferred tax 1,957 900
195,732 5,200
Current Liabilities
Bank overdraft 50 817
Loans and borrowings 1,908 245
Finance lease obligation - 39
Trade and other payables 27,168 8,969
Current tax payable 9 -
Provisions 2,303 617
31,438 10,687
Total Liabilities 227,170 15,887
Total Equity and Liabilities 239,513 64,504
* Prior year restated - refer Note 4
Number of ordinary shares legally in issue less 174,087,719 93,921,053
2 516 555 treasury shares
Net asset value per ordinary share (cents) 84.15 51.76
Net tangible asset value per ordinary share 38.10 36.88
(cents)
Net asset value is calculated by dividing equity less the acquisition reserve, by the number of
ordinary shares in issue, being number of shares in issue less treasury shares
Net tangible asset value is calculated by dividing equity less acquisition reserve less goodwill &
intangible assets, by the number of ordinary shares in issue, being number of shares in issue less
treasury shares.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2014
Reviewed Audited
30-Jun-14 30-Jun-13
R’000 R’000
Cash flows from operating activities 7,922 6,451
Cash flows used in investing activities (16,354) (14,321)
Cash flows from financing activities 75,804 2,823
Total cash and cash equivalents movement for the year 67,372 (5,047)
Cash acquired as part of business combination 6,626 -
Cash and cash equivalents at the beginning of the year 13,585 17,398
Effect of exchange rate movement on cash balances (1,762) 1,235
Total cash and cash equivalents at end of the year 85,821 13,585
NOTE 4 - Prior year error
During 2013, Poynting Antennas Proprietary Limited received R4 million from African Union
Communications Proprietary Limited (“Aucom”) relating to the development of a new product. In return,
Aucom secured the rights to commissions for each product sold. The R4 million was incorrectly
recognised as revenue for the year ended 30 June 2013. The fair value (plus any directly attributable
transaction costs) should have been recognised as a financial liability, as there is a contractual
obligation to Aucom which is dependent on the occurrence of future sales of the product.
The transaction is eliminated as a pre-existing relationship on consolidation of Aucom in the current
financial period.
Restated
The correction of the error results in the following adjustments : year ended
30-Jun-13
R’000
Revenue
Revenue as previously reported 93,743
Prior year error (4,000)
Revenue as restated 89,743
Profit or Loss
Profit after Tax as previously reported 9,840
Prior year error (4,000)
Deferred tax thereon 1,120
Profit after Tax as restated 6,960
Retained earnings
Retained earnings as previously reported 24,355
Prior year error (2,880)
Retained earnings as restated 21,475
Statement of Financial Position
Other Financial Liabilities as previously reported -
Prior year error (4,000)
Other Financial Liabilities as restated (4,000)
Deferred Tax Liability as previously reported (2,020)
Prior year error 1,120
Deferred Tax Liability as restated (900)
Net tangible asset value per ordinary share (cents) as previously reported 39.95
Prior year error (3.07)
Net tangible asset value per ordinary share (cents) as restated 36.88
Basic earnings per ordinary share (cents) as previously reported 10.48
Prior year error (3.07)
Basic earnings per ordinary share (cents) as restated 7.41
Diluted earnings per ordinary share (cents) as previously reported 10.39
Prior year error (3.04)
Diluted earnings per ordinary share (cents) as restated 7.35
Headline earnings per ordinary share (cents) as previously reported 10.48
Prior year error (3.07)
Headline earnings per ordinary share (cents) as restated 7.41
Diluted headline earnings per ordinary share (cents) as previously reported 10.39
Prior year error (3.04)
Diluted headline earnings per ordinary share (cents) as restated 7.35
SEGMENTAL ANALYSIS FOR THE YEAR ENDED 30 JUNE 2014 (REVIEWED)
R’000 Commercial CCS New Business Defence Digital TV Total
Total revenues 32,462 3,796 42 76,665 19,209 132,174
Intersegment
revenues (36) - - (12) - (48)
Total external
revenues 32,426 3,796 42 76,653 19,209 132,126
Operating (loss) /
profit (Note 5) (7,466) (5,960) (4,000) 19,296 (8,805) (6,935)
Investment income 124 38 55 405 392 1,014
Fair value
adjustments &
impairment of
goodwill (104,450) (104,450)
Finance costs (96) - - (37) (29) (162)
(Loss) / Profit
before taxation (7,438) (5,922) (3,945) 19,664 (112,892) (110,533)
Taxation 2,842 1,889 894 (3,847) 1,597 3,375
(Loss) / Profit for
the year (4,596) (4,033) (3,051) 15,817 (111,295) (107,158)
Note 5 - includes Aucom acquisition costs of R3 424 693
Reportable segments
assets 36,045 13,143 25,509 71,790 93,026 239,513
Reportable segments
liabilities (19,962) (250) (17,991) (27,349) (161,618) (227,170)
Operating (loss) /
profit (Note 5) (7,466) (5,960) (4,000) 19,296 (8,805) (6,935)
Depreciation and
amortisation
(Note 6) 4,734 690 367 3,931 768 10,490
EBITDA (2,732) (5,270) (3,633) 23,227 (8,037) 3,555
Note 6 - includes amortisation of Aucom intangibles of R696 722
SEGMENTAL ANALYSIS FOR THE YEAR ENDED 30 JUNE 2013 (RESTATED)
R’000 Commercial New “Digital TV
* CCS Business * Defence Note 7” Total
Total revenues 40,200 6,259 - 47,398 - 93,857
Intersegment
revenues (4,054) - - (60) - (4,114)
Total external
revenues 36,146 6,259 - 47,338 - 89,743
Operating (loss)
/profit (505) (2,798) (131) 10,241 - 6,807
Investment income 33 - 3 452 - 488
Finance costs (37) (1) - (20) - (58)
Profit / (Loss)
before taxation (509) (2,799) (128) 10,673 - 7,237
Taxation 827 597 (129) (1,572) - (277)
Profit / (Loss) for
the year 318 (2,202) (257) 9,101 - 6,960
Reportable segments
assets 23,112 8,454 2,419 30,519 - 64,504
Reportable segments (7,374) (367) (872) (7,274) - (15,887)
liabilities
Operating (loss)
/profit (505) (2,798) (131) 10,241 - 6,807
Depreciation and
amortisation 4,245 388 - 3,111 - 7,744
EBITDA 3,740 (2,410) (131) 13,352 - 14,551
* Prior year restated - refer Note 4
Note 7 - The Digital TV segment includes only Aucom which was acquired during the year
REVIEWED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014
ACQUISITION OF SUBSIDIARY
The pro-forma results used, and on 28 February 2014 shareholders approved, the issue of 66 million
shares at 75 cents in terms of the agreement for the acquisition of 100% of African Union
Communications Proprietary Limited (“Aucom”) , which amounted to R49 500 000.
Aucom, based in Pretoria, was founded in 2001 and focuses on providing professional products, systems
integration and implementation and commissioning services to the broadcast and telecommunications
market in Africa.
In terms of IFRS3 (Business Combinations) the transaction had to be accounted for at the fair value
of the shares at that date and the net present value of any contingent consideration. The share price
at 28 February 2014 was 271 cents which valued the share consideration at R178 860 000 and under IFRS
represented the fair value.
Since acquisition, revenue of R19.2 million and an after tax loss of R3.4 million has been included
in the group’s profit and loss. If the acquisition had been accounted for at the beginning of the
year, revenue of R103.8 million and an after tax profit of R13.8 million would have been included in
the group’s profit and loss.
Contingent Consideration
Of the 66 million shares issued, 49.5 million shares are held as guarantee, and will be released to
the sellers as profit warranties are met for the years ending 30 June 2014, 30 June 2015 and 30 June
2016, or clawed back if warranties are not met. The fair value of this portion of the contingent
consideration, which is represented by shares already in issue, amounted to R134.1 million at the
transaction date, and is presented by an acquisition reserve in equity. At 30 June 2014, this
contingent consideration had increased by R9.4 million as consequence of the increase in the Poynting
share price, and was fair valued at R143.5 million.
An additional consideration is payable if the Aucom’s cumulative 3 year Profit after Tax exceeds R38
million, in which instance the vendors will receive 50% of that out-performance. The fair value of
this additional contingent consideration amounted to R2 063 702 as at 28 February 2014 and the total
consideration is therefore R180 924 702.
For the purposes of the contingent consideration it is management's assessment that the profit
targets will be met.
Identifiable net assets acquired and liabilities assumed 28-Feb-14
R’000
Plant & equipment 299
Other financial assets 6,524
Inventories 8,416
Trade & other receivables 30,159
Less : Provision for doubtful debts (2,248)
Cash and cash equivalents 6,626
Shareholders loans (1,913)
Deferred tax liabilities (1,151)
Current tax payable (2,894)
Trade and other payables (21,596)
Total identifiable net assets acquired 22,222
Intangible assets on acquisition
Goodwill arising from the acquisition has been recognised as follows:
Identifiable net assets as at 28 February 2014 22,222
Intangible assets (customer relationships) 10,451
Deferred tax thereon (2,926)
Goodwill – predominantly arising from the increase in share price from 148,297
75c to 271c
Total Consideration 178,044
IFRS requires an annual review of the recoverable amount of the investment in Aucom. This was
estimated based on the present value of the future cash flows expected to be derived from the Cash
Generating Unit (value in use), using a pre-tax discount rate of 22.1% and a terminal value growth
rate of 5% from 2019. The key assumptions were derived from past performance at Aucom. The
recoverable amount of the CGU was estimated to be lower than its carrying amount and an impairment of
R95.0 million was required. A change of 1% in the pre-tax discount rate will result in a R2.5 million
(2.6%) change in the impairment.
75 cps 271 cps 290 cps
At issue price 28-Feb-14 30-Jun-14
Consideration paid R’000 R’000 R’000
Equity - 16 500 000 ordinary shares in
Poynting Holdings Ltd 12,375 44,715 44,715
Contingent consideration - 49 500 000
ordinary shares in Poynting Holdings Ltd 37,125 134,145 143,550
Contingent consideration - profit
warranties 2,064 2,064
49,500 180,924 190,329
Settlement of pre-existing relationship (2,880) (2,880)
Total Consideration 178,044 187,449
Acquisition related costs
Costs of R2.86 million relating to this acquisition are included in operating expenses in the
consolidated statement of comprehensive income
Financial instruments carried at fair value
The fair value of a financial instrument is the price that would be received for the sale of an asset
or paid for the transfer of a liability in an orderly transaction between market participants at the
measurement date.
The existence of published price quotations in an active market is the best evidence of fair value
and, where they exist, they are used to measure the financial asset or financial liability. A market
is considered to be active if transactions occur with sufficient volume and frequency to provide
pricing information on an ongoing basis. Financial instruments fair valued using quoted prices would
generally be classified as level 1 in terms of the fair-value hierarchy.
Where a quoted price does not represent fair value at the measurement date or where the market for a
financial instrument is not active, the group establishes fair value by using a valuation technique.
Valuation techniques applied by the group would result in financial instruments being classified as
level 2 or level 3 in terms of the fair?value hierarchy. The determination of whether a financial
instrument is classified as level 2 or level 3 is dependent on the significance of observable inputs
versus unobservable inputs in relation to the fair value of the financial instrument.
The valuation technique applied to specific financial instruments depend on the nature of the
financial instrument and the most appropriate valuation technique is determined on that basis.
The carrying values of other financial assets & liabilities, trade & other receivables & payables and
loans & borrowings approximate their fair value.
Fair value hierarchy
Fair value measurements are categorised into different levels in the fair value hierarchy based on
inputs to valuation techniques used. The different levels are defined as follows:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable
inputs).
Valuation of the liability for acquisition to be settled by shares already in issue
“In terms of IFRS 13.24, fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction in the principal (or most advantageous) market at the
measurement date under current market conditions (ie an exit price) regardless of whether that price
is directly observable or estimated using another valuation technique.“
The market in Poynting shares does not have sufficient frequency and volume to provide pricing
information on an ongoing basis in respect of the 49.5 million shares already in issue that are
deemed under IFRS to be deferred consideration.
Poynting could not have entered into a transaction to place shares at a price of 334cps at close of
business in the market on 30 June 2014, and management therefore have determined that under IFRS
13.78 this could not be a level 1 input.
Management have therefore considered a number of other indicators to determine the fair value of the
deferred consideration shares. This included the 30 day Volume Weighted Average Price up to 30 June
2014 of 285 cents per share, a trade of 12 million shares on 30 May 2014 at 275 cents per share, and
the price within the bid-ask spread that is most representative of fair value, which is to be used to
measure fair value regardless of where the input is categorised within the fair value hierarchy.
Management considered the bid price available on 30 June 2014 by reference to the opening share price
on 1 July 2014 (being 290 cents per share) and the highest traded price on 1 July 2014 (also being
290 cents per share) and has valued the liability in respect of the contingent consideration shares
already in issue accordingly.
A change of 10% in the fair value of investment and liability at the reporting date would have
increased/(decreased) equity and profit or loss by the amount shown below. This analysis assumes that
all other variables remain constant. If the liability was valued at a year end closing price of 334
cents per share, an additional loss of R21 780 000 would have been recognised.
30-Jun-14
Effect on profit/(loss) and equity R’000
10% increase (14,355)
10% decrease 14,355
Reviewed Audited
30-Jun-14 30-Jun-13 *
Level 3 balances comprise: R’000 R’000
Balance at the beginning of the year - -
Liability for contingent consideration (134,145) -
Revaluation in profit and loss (9,405) -
Balance at the end of the year (143,550) -
SUBSEQUENT EVENTS
Shareholders are referred to the SENS announcement dated 16 July 2014 regarding the acquisition of
Radio Network Solutions (“RNS”), and the further cautionary announcements dated 27 August 2014 and 3
September 2014, where shareholders were advised to continue exercising caution when dealing in the
Company’s securities, until a further announcement incorporating the pro forma effects of the RNS
Acquisition is made.
Management is attending to the preparation of the pro-forma results and conclusion of the sale of
shares agreement which is subject to the finalisation of the due diligence and board approval.
STATEMENT OF COMPLIANCE
The condensed consolidated financial statements for the year ended 30 June 2014 have been prepared in
accordance with the requirements of the JSE Limited Listings Requirements for provisional reports and
the requirements of the Companies Act 2008 of South Africa,(Act 71 of 2008). The JSE Listings
Requirements require provisional reports to be prepared in accordance with the framework concepts and
the measurement and recognition requirements of International Financial Reporting Standards (IFRS)
and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and
Financial Pronouncements as issued by the Financial Reporting Standards Council and to also, as a
minimum, contain the information required by IAS 34 – Interim Financial Reporting.
BASIS OF PREPARATION
The accounting policies applied in the preparation of the condensed consolidated financial statements
are in terms of IFRS and are consistent with those applied in the previous consolidated annual
financial statements, except for the standards and amendments to standards that became effective for
the first time in the financial year commencing 1 July 2013 and the new accounting policies disclosed
below:
* IFRS 10 – Consolidated Financial Statements;
* IFRS 11 – Joint Arrangements;
* IFRS 13 – Fair Value Measurement;
* IAS 19 (2011) – Employee Benefits;
* IAS 28 (2011) – Investments in Associates and Joint Ventures;
* Amendments to IFRS 7 – Financial Instruments: Disclosures: Offsetting Financial Assets and
Financial Liabilities;
* Amendment to IAS 32 – Financial Instruments Presentation: Tax effect of distribution to holders of
equity instruments; and
* IAS 34 – Interim Financial Reporting: Segment information for segment assets.
The impact of adopting the above standards has had no material effect on the condensed consolidated
financial statements.
New accounting policies:
Trading operating (loss)/profit comprises sale of goods, rendering of services and directly
attributable costs but excludes investment income, fair value adjustments, and impairment of goodwill
and finance costs.
The acquisition reserve is used where shares are legally regarded as issued but for accounting
purposes are regarded as contingent shares (ie subject to recall) where the accounting standards
require such shares to be classified as a liability.
The reviewed condensed consolidated results have been presented on the historical cost basis, except
for other financial assets and other financial liabilities, which are fair valued. These results are
presented in Rands, rounded to the nearest thousand, which is the functional currency of Poynting and
the group presentation currency. These reviewed provisional condensed consolidated results
incorporate the financial statements of the company, its subsidiaries and companies that, in
substance, are controlled by the group and the group’s interest in joint ventures. Results of
subsidiaries and joint ventures are included from the effective date of acquisition up to the
effective date of disposal. All significant transactions and balances between group enterprises are
eliminated on consolidation.
These condensed consolidated financial statements have been reviewed by the Group’s auditors, KPMG
Inc, and their unmodified review report is available for inspection at the Company’s registered
office.
The auditor’s report does not necessarily report on all of the information contained in this
announcement. Shareholders are therefore advised that in order to obtain a full understanding of the
nature of the auditor’s engagement they should obtain a copy of the auditor’s report together with
the accompanying financial information from the issuer’s registered office.
The condensed consolidated financial statements were prepared under the supervision of the Group
Financial Director, John von Gottberg BScEng(Aero) BCom(Acc) PGDA CA(SA).
DIRECTORATE
During the year under review, up to and including the date of this report, the following changes to
the Board took place. Mr Andries Mellet was appointed as Independent Non-Executive director on 20
December 2013 and as an Executive Director on 10 September 2014. Mr Richard Willis resigned on 5
March 2014. Mr Johan Ebersohn resigned and was replaced by Mr John von Gottberg as Financial Director
on 10 September 2014.
By order of the board
Andre Fourie John von Gottberg
Chief Executive Officer Financial Director
30 September 2014
Johannesburg
Directors
Coen Bester*^ (Chairman), Jürgen Dresel (German), Andre Fourie (Chief Executive Officer), Zuko
Kubukeli*^, Andries Mellet (Chief Operating Officer), John von Gottberg (Financial Director)
*Independent ^Non-executives
Registered office
1 Travertine, N1 Business Park, Kosmosdal, Centurion, 0157
(PO Box 76579, Wendywood, 2144)
Designated Adviser
Merchantec Proprietary Limited
Registration Number 2008/027362/07
2nd Floor, North Block, Hyde Park Office Tower, Corner 6th Rd and Jan Smuts Ave, Hyde Park, 2196
(PO Box 41480, Craighall, 2024)
Company Secretary
Merchantec Proprietary Limited
Transfer Secretaries
Computershare Investor Services Proprietary Limited
Registration Number 2004/003647/07
Ground Floor, 70 Marshall Street, Johannesburg, 2001
(PO Box 61051, Marshalltown, 2107)
Investor Relations
Keyter Rech Investor Solutions cc
Registration Number 2008/156985/23
5 2nd Road, Hyde Park, 2196
PRINCIPAL SUBSIDIARIES
Poynting Antennas Proprietary Limited
Registration Number 2000/026835/07
Specialised Antennas Division
Managing Director: Jürgen Dresel
1 Travertine, N1 Business Park, Kosmosdal, Centurion, 0157
Tel +27 (0)10 007 2020
Commercial Antennas Division & Cellular Coverage Solutions
Head (acting): Dries Mellet
Unit 4, N 1 Industrial Business Park, Landsmark Avenue, Samrand, 0157
Tel +27 (0)12 657 0050
Projects Division
Head: André Fourie
Unit 4, N 1 Industrial Business Park, Landsmark Avenue, Samrand, 0157
Tel +27 (0)12 657 0050
African Union Communications Proprietary Limited
Registration Number 1999/000409/07
Digital TV Division
Managing Director: Villiers Joubert
394 Cliff Avenue, Waterkloof Ridge X2, Pretoria
Tel +27 (0)12 001 8670
Date: 01/10/2014 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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