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Notice Of Restatement Of Prior Reported Financial Results And Trading Statement
DIGICORE HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number: 1998/012601/06)
Share Code: DGC
ISIN Number: ZAE000016945
("DigiCore" or “the company” or “the group”)
NOTICE OF RESTATEMENT OF PRIOR REPORTED FINANCIAL RESULTS AND TRADING STATEMENT
Restatement
The audit and risk committee and the board of directors of the group requested that a
detailed investigation be performed into the group’s systems and operations as part of a
comprehensive business review.
This review included a change of management, an understanding of the costing of products and
understanding the process of internal controls and accounting for transactions.
As a result of this review, the following restatements to prior reported financial results
were identified, which the company believes should be amended:
1. Capitalisation of development costs as part of inventories and rental units
DigiCore provides a tracking solution to its customers through a tracking device paired with
tracking software. When revenue is recognised, the resulting cost of sale should also be
recognised for the tracking unit and the software used to provide the solution.
This was previously done by the DigiCore owned factory by including a profit margin that
recovers all manufacturing and development cost when tracking units were sold to other
subsidiaries within the DigiCore group. The group therefore carried these tracking units in
inventory and rental assets at a value inclusive of manufacturing cost and the allocated
development cost.
Management have performed a detailed review of this process and concluded that a more
appropriate basis of capitalising these development costs as part of inventories and rental
units would be to capitalise the amortisation of development costs as recognised in the
financial period.
This change in the accounting policy changes the manner in which the cost is allocated to
inventories and rental units resulting in more relevant and reliable information about the
effects of the transactions.
2. Impairment of rental units
DigiCore rents a tracking solution to customers over a contract period. DigiCore will receive
rental income over the duration of the contract period and the unit should be depreciated
over the contract period.
The accounting system for the rental units was designed in such a manner that a number of
rental units that should have previously been impaired, but could not be identified from the
accounting system, as the economic benefit of these assets had been depleted.
The rental units have been impaired using a recoverable amount based on the estimated value
in use.
Controls have been implemented to improve the manner in which information from the accounting
system is obtained and recorded.
3. Connection incentive bonus (CIB)
DigiCore previously received a fixed commission, CIB, from the cellular network service
providers on activation or renewal of a cellular line contract. Previously this commission
was recognised as revenue when received by the group.
The cellular providers have subsequently ceased to pay these commissions and as a direct
result have significantly reduced the monthly subscription charge.
Due to the availability of this information, management concluded to change the accounting
policy from recognising the CIB revenue upfront to deferring the revenue over the contract
period to reflect the true substance of the transaction.
The following tables summarize the material impacts resulting from the above restatements on
the Group’s financial position, comprehensive income and cash flows:
Interim condensed Consolidated Statement of financial position
As at 31 December 2012 Effect of restatements
All figures in R'000 Balance as Capitalisation Impairment CIB Balance
previously of development of rental Revenue Restated
reported costs units
Property, plant and 205 700 (26 277) (4 857) 174 566
equipment
Deferred tax 29 219 6 952 7 057 43 228
Inventories 105 217 (4 203) 101 014
Total 340 136 (23 528) (4 857) 7 057 318 808
Retained income 474 275 (19 833) (3 658) (18 146) 432 638
Non-controlling (10 794) - (151) (10 945)
interest
Total 463 481 (19 833) (3 809) (18 146) 421 693
Current tax payable 11 500 (1 048) 10 452
Trade and other 89 975 (3 696) - 25 203 111 482
payables
Total 101 475 (3 696) (1 048) 25 203 121 934
As at 30 June 2013 Effect of restatements
Balance as Capitalisation Impairment
All figures in CIB Balance
previously of development of rental
R'000 Revenue Restated
reported costs units
Property, plant and
201 435 (25 029) (14 163) 162 243
equipment
Deferred tax 23 593 8 172 613 3 832 36 210
Inventories 104 347 (4 158) 100 189
Trade and other
249 579 (799) 248 780
receivables
Total 578 954 (21 015) (14 349) 3 832 547 422
Retained income 412 532 (21 016) (15 764) (9 854) 365 898
Non-controlling
15 757 246 - 16 003
interest
Total 428 289 (21 016) (15 518) (9 854) 381 901
Current tax payable 4 028 2 698 6 726
Trade and other
61 667 (1 529) 60 139
payables
Deferred Income - 13 686 13 686
Total 65 695 - 1 169 13 686 80 551
As at 30 June 2012 Effect of restatements
All figures in CIB Balance
Balance as Capitalisation Impairment
R'000 Revenue Restated
previously of development of rental
reported costs units
Property, plant
203 730 (25 826) (4 866) 173 038
and equipment
Deferred tax 29 358 7 510 8 299 45 167
Inventories 95 763 (995) 94 768
Total 328 851 (19 311) (4 866) 8 299 312 973
Retained income 468 199 (19 310) (3 029) (21 341) 424 519
Non-controlling
(14 524) (14 524)
interest
Total 453 675 (19 310) (3 029) (21 341) 409 995
Current tax
16 222 16 222
payable
Trade and other
66 279 - (1 838) 64 441
payables
Deferred Income - 29 640 29 640
Total 82 501 - (1 838) 29 640 110 303
Interim condensed Consolidated Statement of comprehensive income
6 months ended 31 Effect of restatements
December 2012
All figures in R'000 Balance as Capitalisation Impairment CIB Balance
previously of development of rental Revenue Restated
reported costs units
Revenue 448 478 448 478
Cost of sales (149 292) (10 016) 4 436 (154 872)
Operating expenses (249 757) - 1 899 (247 858)
Depreciation and (44 553) 6 357 1 417 (36 779)
amortisation
Capital items 70 (1 408) (1 338)
Profit before 11 606 (3 659) 1 908 4 436 14 291
taxation
Taxation 1 584 1 024 (576) (1 242) 790
Profit after tax 13 190 (2 635) 1 332 3 194 15 081
Non-controlling 1 369 (151) 1 218
interest
Indicator as Capitalisation Impairment
CIB Indicator
Earnings per share previously of development of rental
Revenue Restated
reported costs units
Earnings per share
4.9 -1.1 0.6 1.4 5.8
(cents)
Diluted earnings per
4.9 -1.1 0.6 1.4 5.8
share (cents)
Headline earnings
4.5 -1.1 1.0 1.4 5.8
per share (cents)
Diluted headline
earnings per share 4.5 -1.1 1.0 1.4 5.8
(cents)
Year ended
Effect of restatements
30 June 2013
Balance as Capitalisation Impairment
All figures in CIB Balance
previously of development of rental
R'000 Revenue Restated
reported costs units
Revenue 862 588 36 862 624
Cost of Sales (270 896) (14 598) 14 812 (270 682)
Depreciation and
(98 424) 12 232 3 263 (82 929)
amortization
Capital Items (60 373) (12 563) (72 936)
Profit before
(56 489) (2 366) (9 300) 14 848 (53 307)
taxation
Taxation 4 362 662 (2 085) (4 467) (1 528)
Profit after tax (52 127) (1 704) (11 385) 10 381 (54 835)
Non-Controlling
(156) 246 90
Interest
Earnings per share - Indicator as Capitalisation Impairment
CIB Indicator
Year ended previously of development of rental
30 June 2013 reported costs units Revenue Restated
Earnings per share
(21.7) (0.7) (4.9) 4.3 (22.9)
(cents)
Diluted earnings per
(21.7) (0.7) (4.9) 4.3 (22.9)
share (cents)
Headline Earnings
3.3 (0.7) (0.7) 4.3 6.2
per share (cents)
Diluted headline
earnings per share 3.3 (0.7) (0.7) 4.3 6.2
(cents)
The company`s auditors did not express an opinion on the restated results.
Shareholders will be advised by the company, should the audited restated financial
results differ significantly from the restated financial results presented above.
Trading update:
In terms of paragraph 3.4(b) of the Listings Requirements of the JSE Limited, a listed
company is required to publish a trading statement as soon as it becomes aware that
the financial results for the next period to be reported on will show a 20% or more
difference from those of the previous corresponding period.
Shareholders are advised that the company is in the process of finalising its interim
financial results for the six months ended 31 December 2013 and advises that a
reasonable degree of certainty exists that the group’s:
- headline earnings will be between 8.0 cents and 8.4 cents per share or between
78% to 87% higher; and
- attributable earnings will be between 8.0 cents and 8.4 cents per share or
between 63% to 71% higher,
for the comparative 6 months ended 31 December 2012, as reported on 27 February 2013.
Shareholders are further advised that based on the restated financial results
presented above, a reasonable degree of certainty exists that the group’s:
- headline earnings will be between 8.0 cents and 8.4 cents per share or between
38% to 45% higher; and
- attributable earnings will be between 8.0 cents and 8.4 cents per share or
between 38% to 45% higher,
for the comparative 6 months ended 31 December 2012, as restated.
The improved headline earnings per share and the attributable earnings per share for
the group are as a result of the restatement, increased revenue from continuing
operations, cost savings and the continued reduction in cellular monthly subscription
costs.
The financial information on which this trading statement is based has not been
reviewed or reported on by the company`s auditors.
The interim results for the 6 months ended 31 December 2013 are expected to be
released on or about Wednesday, 26 February 2014.
Centurion
24 February 2014
Sponsor
PSG Capital
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