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VOX - Vox Telecom Limited - Audited Results For The Year Ended 31 August 2008
VOX TELECOM LIMITED
(Registration number 1998/016433/06)
("Vox Telecom" or "the Company" or "the Group")
JSE Code: VOX
ISIN Code: ZAE 000097234
AUDITED RESULTS FOR THE YEAR ENDED 31 AUGUST 2008
- Revenue up 87% to R1 847 billion
- Operating profit up 64% to R137 million
- Profit before taxation and exceptional item up 47% to R113 million
- EBITDA before exceptional item up 76% to R181 million from R103 million
- Cash generated from operations before exceptional item increased by 47%
from R101 million to R149 million
- Exceptional "once off" loss of R60.8 million
- Profit before taxation for the year after exceptional items down 32% to
R52 million
- Earnings per share down 51% to 3.78 cps from 7.67 cps
- Headline earnings per share down 47% to 4.04 cps from 7.67 cps
Condensed Consolidated Balance Sheet Audited Audited
2008 2007
R`000 R`000
ASSETS
Non-current assets 1 459 829 542
272
Plant and equipment 104 524 58 989
Goodwill 597 296 214 742
Other intangibles 733 766 542 009
Finance lease receivables 2 902
Deferred taxation 20 784 13 802
Current assets 449 143 434 714
Inventories 52 859 14 174
Trade receivables and prepayments 306 566 227 825
Current tax receivable 1 441
Cash and bank balances 88 277 192 715
Total assets 1 908 1 264 256
415
EQUITY AND LIABILITIES
Capital and reserves 1 085 642 112
270
Share capital 1 101 884
Share premium 1 002 599 688
384
Reserves 5 428 3 198
Retained earnings 76 357 38 342
Total equity 1 085 642 112
270
Non-current liabilities 296 934 279 980
- interest - bearing 123 550 142 311
- interest -free 502 397
Deferred taxation 172 882 137 272
Current liabilities 526 211 342 164
Trade and other payables 363 090 264 464
Provisions 2 342 5 791
Taxation 15 107 27 582
Current borrowings 145 672 44 327
Total equity and liabilities 1 908 1 264 256
415
Ordinary shares in issue at period 1 101 911 156
end (`000) 327
Net asset value per share (cents) 98.5 70.5
Condensed Consolidated Income Audited Audited
Statement 2008 2007
R`000 R`000
Revenue 1 846 749 990 110
Cost of sales (1 392 (745 855)
909)
Gross profit 453 840 244 255
Other income 1 523 2 427
Depreciation and amortisation (44 474) (19 726)
Employment costs (144 460) (76 085)
Occupancy costs (14 087) (4 100)
Other operating costs (115 581) (63 612)
Operating profit 136 761 83 159
Finance costs (33 955) (14 296)
Finance income 10 185 7 816
Net finance costs (23 770) (6 480)
Profit before taxation and exceptional 112 991 76 679
item
Exceptional item (60 841) -
Profit before taxation 52 150 76 679
Taxation (14 135) (21 763)
Profit for the year 38 015 54 916
Attributable to equity holders of the 38 015 54 916
parent
Earnings per share (cents)
Basic EPS 3.78 7.67
Diluted basic EPS 3.70 7.49
Additional information:
Reconciliation of profit for the year
to headline earnings
Profit for the year 38 015 54 916
Adjustments for:
Impairment of assets 2 631 -
Loss on sale of assets 48 -
Headline earnings 40 694 54 916
Headline EPS (cents) 4.04 7.67
Diluted headline EPS (cents) 3.95 7.49
Number of shares
In issue 1 101 327 911 156
Weighted average 1 004 899 716 166
Share options granted 22 011 16 818
Diluted weighted average 1 026 910 732 984
Consolidated Cash Flow Statement Audited Audited
2008 2007
R`000 R`000
Cash flow from operating activities
Operating cash before working capital 188 651 107 567
movements
Working capital movements (39 277) (6 271)
Cash generated from operations 149 374 101 296
Net interest paid (23 770) (6 480)
Taxation paid (49 313) (13 104)
Net cash inflow from operating
activities before exceptional item 76 291 81 712
Loss on collapse of Dealstream (60 842) -
Net cash inflow from operating 15 449 81 712
activities
Cash flow from investing activities
Additions to plant and equipment to (71 018) (37 227)
expand operations
Additions to other intangibles to (18 822) -
expand operations
Proceeds on disposal of property, plant 2 249 145
and equipment
Acquisition of subsidiaries and (472 141) (393
business units - note 1 201)
Additional vendor payments (12 004) -
Net cash outflow from investing (571 736) (430
activities 283)
Cash flow from financing activities
Proceeds from shares issued (net of 408 307 362 805
costs)
Proceeds from long and short-term 62 652 160 538
borrowings
Net cash outflow from share buy back (2 642) -
Loss on treasury shares misappropriated (16 469) -
Net cash inflow from financing 451 848 523 343
activities
Net (decrease)/increase in cash and (104 439) 174 772
cash equivalents
Bank balance at beginning of year 192 715 17 943
Cash and cash equivalents at end of 88 277 192 715
year
Note 1
Investment in subsidiaries and business units
Amvia Storm ODS Telkom ABSA 2008
Assets Assets R`000
acquired Acquired
Percentage 100% 100% 100%
acquired
Date acquired 1 Dec 07 1 Feb 08 1 Feb 08 1 Dec 07 1 Dec 07
Fair value of
assets and
liabilities
acquired in
subsidiaries:
Plant and 289 2 020 - 2 362 - 4 671
equipment
Intangible
assets: 130 - - - - 130
Computer
software
Finance lease - - - 3 613 - 3 613
receivable
Deferred tax 128 7 190 - 273 - 7 591
asset
Inventories 489 426 - 1 987 - 2 902
Trade and other
receivables 5 617 36 099 - 905 - 42 621
Trade and other (4 924) (57 003) - (167) - (62 094)
payables
Taxation - (1 080) - - - (1 080)
liabilities
Cash 955 (2 158) - (515) - (1 718)
Finance lease - - - (3 536) - (3 536)
Total net 2 684 (14 506) - 4 922 - (6 900)
assets acquired
Intangible
assets
(customer bases 11 119 123 372 2 848 5 370 44 965 187 674
and contracts)
Intangible
assets 5 419 - - - - 5 419
(trademark)
Deferred tax (4 796) (35 778) (826) (1 880) (13 040) (56 320)
Goodwill 21 604 304 124 2 659 1 588 40 575 370 550
Purchase price 36 030 377 212 4 681 10 000 72 500 500 423
Settled in
equity -
ordinary shares (13 500) - - - - (13 500)
in Vox Telecom
Limited
Outstanding at
year end - (16 500) - - - - (16 500)
vendors payable
Cash acquired (955) 2 158 - 515 - 1 718
Cash impact of
acquisition,
net of cash and
cash 5 075 379 370 4 681 10 515 72 500 472 141
equivalents
acquired
Consolidated Share Share Reserve Retained Equity
Statement of capital premium s profits attributabl
Changes in (Accumula e to equity
Equity ted holders of
Losses) the parent
R`000 R`000 R`000 R`000 R`000
Restated 484 206 430 - (16 574) 190 340
balance as at
31 August 2006
Profit for the - - 54 916 54 916
year
Total - - - 54 916 54 916
recognised
income and
expense
Shares issued 400 393 258 - - 393 658
(net of costs)
Shares issued
in terms of
employee 27 17 991 - - 18 018
option scheme
Less: treasury
shares held (27) (17 991) - - (18 018)
Share-based
payment - - 3 198 - 3 198
expense
Balance as at 884 599 688 3 198 38 342 642 112
31 August 2007
Profit for the - - 38 015 38 015
year
Total
recognised - - - 38 015 38 015
income and
expense
Shares issued
(net of costs) 190 403 816 - - 404 006
Treasury
shares issued 27 17 991 - - 18 018
Shares bought
back (33) (64 921) - - (64 954)
Shares re- 33 62 279 - - 62 312
issued
Misappropriati
on of treasury - (16 469) - - (16 469)
shares
Movement in - - (968) - (968)
FCTR
Share-based
payment - - 3 198 - 3 198
expense
Balance at
31 August 2008 1 101 1 5 428 76 357 1 085 270
002 384
COMMENTARY
The condensed annual financial statements for the year ended 31 August 2008
for Vox Telecom, are presented below. These condensed financial statements
have been prepared in accordance with accounting policies and methods of
computation that are consistent with those of the prior year, except for the
adoption of International Financial Reporting Standards ("IFRS") 7, Financial
Instruments: Disclosures, and with IFRS. The annual financial statements from
which these results have been derived have been audited by Deloitte & Touche.
Their unmodified opinion is available for inspection at the registered office
of the company. This announcement has been prepared in accordance with IAS 34
Interim Financial Reporting and JSE listings requirements.
COMPANY PROFILE
Vox Telecom Limited is a leading alternative, independent telecom operator,
providing voice and data services to the Southern African market. The Group
competes through its primary brands Vox Telecom, DataPro, @lantic, @lantic
Exchange, Orion Telecom and Vox Telepreneur and has offices in Johannesburg,
Durban, Cape Town and Pretoria as well as in Windhoek, Namibia. Vox Telecom is
a listed company trading on the Alternative Exchange (ALTX), a division of the
JSE Limited. Investor and shareholder information is available at
www.voxtelecom.co.za
BUSINESS OVERVIEW
Vox Telecom has continued its strategy of increasing revenue and earnings
through a combination of organic and acquisitive growth. The 2008 fiscal year
has been characterised by a number of strategic acquisitions, organic growth
across all business units and a substantial increase in the Group`s customer
base. Revenues increased by 87% to R1 847 billion from the R990 million
recorded in the previous year and operating profits increased by 64% to R137
million from R83 million in the previous year. Earnings per share ("eps") and
headline earnings per share ("heps") were significantly impacted by the
exceptional loss of R61 million from the Dealstream Events, which have been
explained under "Financial Review" and "Subsequent Events". These events are
regarded as `exceptional` or `once off` in nature and have no direct impact on
the operations of the Company.
Key highlights of the year include:
- strong organic growth across the core operating business units with a
continued focus on operational improvement and service delivery to ensure the
delivery of the highest levels of customer service;
- the Group has grown to service over 18 000 business customers across the
Corporate Voice and Corporate ISP business units and over 166 000 Consumer ISP
customers;
- further expansion of the Service Centre, the Group`s centralized call
centre operation with 107 seats in use by a multi-disciplined team that
provides 24x7 support to corporate customers and consumers;
- meaningful growth in Vox Telepreneur, which markets the Vox ADSL consumer
phone as its primary product. Vox Telepreneur now includes 2 226 dealers and 4
047 customers as at the date of this announcement. Average Revenue Per User
("ARPU`s") for Vox Telepreneur achieved on voice usage have exceeded initial
forecasts with average ARPU`s of approximately R262 per user;
- the acquisition and integration of Absa Internet Access ("AIA"),
effective 1 December 2007, and Storm Telecom ("Storm"), effective 1 February
2008, have both been completed and further synergies are expected to be
achieved over the next 12 months;
- the acquisition of Amvia, effective 1 December 2007, has exceeded
financial performance expectations and has resulted in a business that offers
superior corporate faxing solutions and services. Opportunities to sell
Amvia`s products and services have presented themselves in the UK, China and
India and these will be actively pursued with joint venture partners over the
forthcoming months;
- the incorporation of Telkom Ericsson, a PABX reseller, into Orion Telecom
Namibia (previously Definity Telecom Namibia), that was acquired effective
from 1 December 2007, has been completed and the `combined` businesses are
positioned to grow voice revenues significantly in the Namibian market;
- the BEE shareholding has increased to 43.34% following the Storm
acquisition with the Lereko M'tier Capital Growth Fund ("LMCGF") now holding
24.27%, Mvelaphanda Group Limited 12.4%, Regiments Capital 4.24%, Thembeka
Capital 1.61% and a group of historically disadvantaged individuals 0.82%;
- the Public Investment Corporation ("PIC") has acquired 8.12% of the
shareholding of Vox which is considered as a BEE neutral shareholding.
Excluding the PIC`s shareholding, the BEE shareholding is now 47.17%, which
firmly establishes Vox Telecom as the largest, black owned telecommunications
company in South Africa;
- growth in the monthly contracted annuity revenue across the Group has
increased from R125 million per month as at 31 August 2007 to R175 million per
month as at 31 August 2008;
- increase in our staff complement from 515 to 698 employees to support
organic growth and the recent acquisitions;
- the recent high court judgment that allows VANS to self-provide (build
their own networks) and therefore receive Independent Electronic Communication
Network Services ("I-ECNS") licenses will enable Vox Telecom to compete as a
fully fledged telecommunications operator with the same rights as the
incumbent operators such as Telkom, MTN and Vodacom. The obligations and fees
pertaining to such a license are yet to be tabled in detail by ICASA;
- Vox Telecom has entered into a strategic agreement with Neotel to supply
Neotel products to the Vox customer base;
- Vox is recognised as a leading aggregator of alternative voice traffic
and dominates interconnect traffic passed between the Vox network and the
incumbent operators, which has resulted in the continued investment in network
infrastructure to support the growing data and voice business at the major
centres of Johannesburg, Cape Town and Durban; and
- Vox was recently announced as the winner of the ALTX category, Chartered
Secretaries/JSE annual report awards for corporate reporting for its 2007
Annual Report.
FUTURE PROSPECTS
We will continue with our strategy to build Vox Telecom into the leading
independent, alternative provider of voice and data solutions to the southern
African market with our key goals and objectives remaining unchanged.
This strategy includes, but is not limited to:
- the continued growth of all the core business divisions through strong
organic growth;
- strategic acquisitions of businesses that allow Vox to further scale its
voice and data business or that enable the expansion into complimentary
markets that improve Vox`s strategic positioning including further expansion
into Africa where it makes sense;
- growth in the volume of incoming voice minute traffic, terminating on the
Vox Telecom network primarily by Vox`s positioning as a `wholesale` Telco
operator and secondly by the growth of Vox Telepreneur, the Vox ADSL consumer
product offering;
- maximizing synergies and economies of scale on Vox`s established voice
and data platforms;
- growth in the ARPU across the @lantic consumer customer base as well as
the Orion and DataPro corporate business;
- maximizing the benefit of strategic relationships with key players in the
South African market, such as Neotel; and
- the ongoing provision of comprehensive and innovative telecommunications
solutions that deliver on the promise of convergence and that provide
customers with an economic benefit and strategic advantage.
Vox Telecom offers a critical service to the corporate sector and believes
that it provides a competitive voice and data offering to business at a
reasonable price. In addition, South Africa is poised for further growth in
internet penetration with independent analysts such as BMI forecasting
significant growth in the consumer sector over the next 5 years.
Vox Telecom has made significant investments in its infrastructure, people and
products and expects to achieve strong organic growth over the next 5 years as
it takes advantage of the full liberalization of the South African
telecommunications market and the opportunities available in the southern
African region.
FINANCIAL OVERVIEW
Revenues increased by 87% to R1 847 billion from R990 million recorded in the
previous year, including 7 months contribution from Storm, effective 1
February 2008 and 9 months contribution from AIA effective 1 December 2007.
Similarly, Amvia and Telkom Ericsson have only been accounted for from
1 December 2007. Monthly contracted revenue increased to R175 million per
month from R125 million per month as at 31 August 2007.
The growth in revenues have primarily been driven by the growth in corporate
voice revenues derived from Orion Telecom, now included for a full 12 months,
and acquired Storm voice revenues. Organic revenue growth in corporate voice
approximated 14% across 7 931 customers. Including acquisitions this growth
rate was 37%.
Encouragingly, Group gross profit margins were maintained at 25%, including
lower margin voice business, which now accounts for approximately 72% of total
revenue. Operating profit margins decreased to 7% from 8% after including the
effects of costs relating to the Storm transaction, including lease
cancellation costs and associated integration costs. In addition, increased
finance costs relating to working capital facilities of R94 million, and the
effects of an increase in the prime lending rate over the period, collectively
contributed to this reduction in profitability.
DataPro`s Corporate data revenue grew approximately 30%, growing organically
off its own customer base, as well as increased market share from new sales
outside of the existing base. ARPU increased from R2 200 per month to R3 772
per month, derived from a base of over 8 100 Corporate customers. Gross
profit margins have remained at 35%. Corporate data growth continues to be
driven by the demand and increased usage of bandwidth, which has impacted
positively on data margins. Businesses ADSL continues to grow strongly,
increasing market share whilst the broadband solution continues to offer
numerous alternatives to both consumers and the corporate market, with
significant increases in demand for wireless solutions being experienced.
@lantic`s Consumer data revenue grew, through a combination of acquisitive and
organic growth, from R77 million to R171 million (the acquisition of the AIA
customer base contributed approximately R6 million per month).
Consumer ARPU derived across a base of 166 318 customers has grown to R99 per
month and continues to grow month-on-month. The AIA customer base was
acquired with an ARPU of R49 per month and the strategy is to restore ARPU
across the entire @lantic base to levels of approximately R150 per month.
@lantic has consistently been the leading reseller of iBurst and is a major
reseller of Vodacom 3G solutions.
Consumer voice revenues from Vox Telepreneur are growing at 20% per month,
which is being derived from 4 047 Vox ADSL phones currently in use. ARPU`s
have grown to R269 per month which is in line with expectations. Total
capital investment in Vox Telepreneur to-date in systems and products is R40
million. Consumer voice revenues from Vox Telepreneur achieved gross profit
margins of 36%. Revenues for the year-to-date, from initial launch in March
2008, were R5m.
Employment costs, as a percentage of revenue, rose marginally to 7.8%, after
higher than anticipated integration costs related to the Storm transaction but
are expected to decrease going forward. Similarly, occupancy costs are
expected to decrease as a result of the cancellation of lease obligations
inherited from the Storm transaction. Other operating costs, as a percentage
of revenue, have decreased to 6.2% from 6.4% and improvements in the year
ahead have been targeted through careful cost control. The Group is well
positioned for growth without significantly increasing headcount for the
upcoming 12 month period.
Operating profit before exceptional items increased 64% to R137 million, from
R83 million and EBITDA increased 76% to R181 million, after adding back
amortisation and depreciation charges of R44 million. This resulted in cash
generated from operations of R149 million, which translates to an EBITDA cash
conversion rate of 82%, which in turn has predominantly been invested in
capital expenditure.
The Storm voice and data revenues have taken longer than was originally
anticipated to be integrated into the various business units and the
maximisation of synergies and profits expected from this acquisition are now
expected to be derived in the year ahead. Once off integration costs relating
to the Storm transaction are estimated at R3 million, arising primarily from
the cancellation of lease obligations, other services and doubtful debts
arising from the acquired customer base.
The adjustment in respect of share based payments, in accordance with IFRS 2,
relates to options granted to key Vox Telecom management and employees, and
amounted to R3 million for the year.
Exceptional items relate to the Dealstream Events, which are regarded as non-
recurring in nature and have been accounted for as follows:
- The full impact of a R61 million charge has been accounted for in the
financial year ended 31 August 2008, including a provision for anticipated
legal and other related costs;
- This R61 million `once off` charge consists of the following items:
- Misappropriation of a cash balance of R30 million;
- this cash balance of R30 million has been derecognised as a
financial asset in terms of IAS 32 with a direct impact on eps and heps;
and
- this capital loss can be offset against future capital gains
for tax purposes.
- The derecognition and resulting impairment of employee loans and interest
capitalised to the value of R29 million in terms of IAS 32 and IAS 39,
respectively;
- with a resultant impact to eps and heps;
- with the loss being deductible for tax purposes.
The loans were granted to employees on an arms length basis to assist them to
participate in the share placement relating to the Storm transaction with the
resulting interest pledged as security to the Company.
Share premium has been reduced by R16 million from the fraudulent
misappropriation of 27 300 000 treasury shares that had been allocated for the
purposes of a share option scheme. Of these, 2 348 000 options have been
exercised to date. This loss has been recognised directly against share
premium.
Earnings per share ("eps") and headline earnings per share ("heps") have
decreased by 51% and 47% to 3.78 cps and 4.04 cps respectively, as a result of
the Dealstream Events. If the Dealstream Events are excluded this would have
resulted in an increase in eps and heps of 25% and 28% respectively, compared
to the previous reporting period.
Cash generated from operations grew steadily to R149 million, after working
capital investments as at 1 February 2008 and relating to the payment of R57
million oft acquired payable balances in respect of the Storm transaction. We
expect cash balances on hand to continue to steadily improve given the cash
generative nature of the underlying businesses and careful attention to
investment in working capital and the diligent collection of accounts
receivable. A further R70 million of working capital facility provided by
Investec Bank Limited was raised during the period under review to fund
further expansion and growth of existing and new operations. A portion of the
cash investment in the Vox ADSL phone amounting to R23.8 million has been
refinanced by Innovent, with the purpose of freeing up working capital for
more efficient use within the operations of the Group.
The increases in intangibles and goodwill and the corresponding increase in
deferred taxation, arises principally from the acquisitions of Storm and AIA
and to a lesser extent the acquisitions of Amvia, Telkom Ericsson and the
customer base of ODS, all of which have been accounted for in terms of IFRS 3.
In compliance with IFRS3 these acquisition balance sheets remain preliminary
as at 31 August 2008 and will be finalised within the prescribed 12 month
period from respective transaction effective dates.
Inventory balances increased by R39 million at year end, relating to the
purchase of 20 000 units of Vox Telepreneur ADSL handsets and modems during
the period. At year end approximately 3 150 units had been sold with the
balance of R32 million contributing to working capital balances.
A considerable investment has been made in infrastructure, upgrading of
systems and software, development of new products and training of employees.
This resultant capital expenditure (on premises, equipment, improving and
maintaining the IP network infrastructure) amounted to R71 million for the
year under review. This is higher than the originally anticipated costs of
R50 million. R40 million of the investment cost was incurred during the six
months ended 29 February 2008, with the balance being incurred in the second
six months of the financial year. Anticipated capital expenditure in the year
ahead is not expected to exceed R70 million and where possible this
expenditure will be deployed over an extended period.
The annual financial statements have been prepared on the going concern basis,
since the directors have every reason to believe that the company has adequate
resources in place to continue an operational existence for the foreseeable
future.
SEGMENTAL REPORTING
Primary business segments
The Group operates through its` four operating businesses, namely Orion,
DataPro, @lantic, and Amvia. Other areas include corporate head office and the
other early stage businesses. The Group`s principal product offerings are as
follows:
Orion - Corporate voice and data through Orion Telecom and DataPro. All voice
acquisitions, namely Definity, Dial and Voip Telecoms, Orion Namibia (includes
Telkom Ericsson) and Storm Telecom from 1 February 2008 have been incorporated
into Orion.
DataPro - Corporate voice and data through DataPro. The acquisition of ODS and
Storm Telecom (data only) from 1 February 2008 have been incorporated into
DataPro
@lantic - Consumer data through @lantic Internet Services which includes the
acquisition of AIA (from 1 December, 2007)
Amvia - Fax services through Amvia, effective 1 December 2007
Other - includes Vox Telepreneur, Vox Core, @lantic Exchange and corporate
head office:
Head
office
Total Orion DataPro @tlantic Amvia and other
R`000 R`000 R`000 R`000 R`000 R`000
2008
Revenue 1 846 749 1 336 525 261 927 169 097 34 220 44 980
Operating
profit
before
exceptional
item 136 761 85 116 24 114 14 619 3 399 9 513
Net finance
(costs)
income (23 770) 18 648 (22 528) 2 931 173 (22 994)
Inventory 52 859 13 732 2 451 569 12 767 23 340
Goodwill 597 296 480 212 40 142 48 185 28 757 -
Intangible
assets
(excluding
software) 718 694 520 198 45 202 117 058 18 075 18 161
Other
segment
assets 539 566 327 354 94 613 16 014 19 110 82 476
Total assets
1 908 415 1 341 495 182 408 181 826 78 709 123 977
Total
liabilities 823 145 386 111 59 635 72 681 14 527 290 190
Depreciation
and
amortisation 44 474 19 316 7 053 5 252 465 12 388
Head
Office
Total Orion DataPro @tlantic and other
2007 R`000 R`000 R`000 R`000 R`000
Sales 990 110 747 766 162 292 76 585 - 3 467
Operating
profit
(loss) 83 159 73 379 15 030 10 672 - (15 922)
Net finance
(costs)
income (6 480) 420 (3 840) (2) - (3 058)
Inventory 14 174 7 773 2 426 3 975 - -
Goodwill 214 472 174 500 37 483 2 759 - -
Intangible
assets
(excluding
software) 536 104 450 065 14 209 35 737 - 36 093
Other
segment
assets 499 237 346 928 83 724 18 070 - 50 515
Total assets 1 264 256 979 266 137 842 60 541 - 86 608
Total
liabilities 622 145 291 892 73 624 18 609 - 238 019
Depreciation
and
amortisation 19 726 8 230 9 221 949 - 1 326
Secondary geographic segments
The Group`s businesses operate in two principal geographical areas - South
Africa and Namibia.
South South
Total Africa Namibia Total Africa Namibia
2008 2008 R`000 2008 2007 2007 R`000 2007
R`000 R`000 R`000 R`000
Sales 1 846 749 1 822 292 24 457 990 110 983 453 6 657
Segment
sales 1 908 415 1 885 803 22 612 1 264 257 1 261 610 2 647
ACQUISITIONS AND ISSUE OF SHARES FOR CASH DURING THE YEAR
With effect from 1 December 2007, Vox Telecom, through its wholly owned
subsidiary, @lantic, acquired the customer contracts and certain computer
hardware from Absa Bank Limited ("ABSA") for a purchase consideration of R73
million. The purchase consideration was settled through existing cash
resources.
Vox Telecom acquired Storm with effect from 1 February 2008. Storm is
considered one of South Africa`s leading alternative telephony service
providers, offering voice services via a variety of technologies including:
VoIP, cellular least cost routing and international call back. The purchase
consideration of R377 million was discharged by way of a vendor placement of
184 301 524 shares to the Storm vendors, 149 538 462 of which were then
placed on behalf of the vendors at 212 cps to Regiments Capital, Mvelaphanda
Group Limited, other existing shareholders. The balance of 34 763 062 shares
were acquired by approximately 160 Vox Telecom employees, via a combination of
own funds and funds loaned to employees specifically for the purchase of these
shares. These employee interests were held via Contracts for Difference at
Dealstream and have been compromised and accordingly loans to employees
impaired as a result of the Dealstream Events. Further commentary has been
provided in the Financial Overview and Subsequent Events.
Amvia was acquired for a purchase consideration of R36 million, effective 1
December 2007, settled by a combination of R6 million cash and a further
amount by way of a new issue of 5 869 564 ordinary shares at a price of 230
cps. A further 7 173 913 ordinary shares were issued to Amvia vendors at
230cps on 5 November 2008 based on the attainment of certain profit
warranties. As at 31 August 2008 there is a potential future contingent
consideration of R7 million payable as a result of these warranties being
exceeded.
The remaining acquisitions of Telkom Ericsson and ODS were settled in cash,
with a final nominal amount of approximately R2 million still payable to the
ODS vendors in February 2009.
The total number of shares in issue as at 31 August 2008 was 1 101 326 786 and
has increased to 1 108 501 698 after year end and due to the issue of the 7
173 913 Amvia shares. 2 348 000 share options have been exercised to date by
employees as at 31 August 2008.
The total number of shares in issue on weighted average fully diluted basis as
at 31 August 2008 is now 1 026 909 517.
SUBSEQUENT EVENTS
Dealstream Events
SENS announcements were made in respect of this matter on 23 September 2008,
26 September 2008 and 28 October 2008. The Company has referred to these
matters as the "Dealstream Events". These events have resulted in an
exceptional `once off` loss of R 60.8 million in the current financial year,
and as explained in the Financial Overview above.
Further to this:
- the Company and its legal advisors continue to engage with the curator of
Dealstream that has been appointed at the instance of the FSB, to pursue its
claim against Dealstream on behalf of the Company and its employees. The
Company has appointed a firm of independent forensic auditors to investigate
the misappropriation of 27 300 000 treasury shares, for the purposes of a
share incentive scheme established for the benefit of the Company`s employees
by Dealstream. This investigation is still underway and the curator has
agreed to cooperate with Vox Telecom. The Company can confirm, however, that
these shares have been misappropriated which has been confirmed in the
Curator`s report dated 10 November 2008.
- the Company has filed a claim against Dealstream on behalf of the Casey
Investment Holdings Limited Share Incentive Scheme Trust ("the Trust") for the
proceeds of the sale of the misappropriated shares amounting to R53 million
(27 300 000 shares x 195 cents per share).
- the Company has filed a claim against Dealstream and/or its
directors/officers for missing cash in the amount of approximately R30
million.
- The claims have been lodged with the Curator of Dealstream.
the Company will assist the relevant authorities in the ensuing investigation
and prosecution.
- The Company has opened a case of theft against Dealstream and/or its
directors/officers with the SAPS` Serious Economic Offences Unit.
The curator of Dealstream has made a verbal claim against certain directors
and employees of Vox Telecom regarding potential claims by Dealstream. This
claim has not been substantiated in writing to the employees of the Company
and is based on an assumed value of Vox shares following RMB placing
Dealstream into default. Vox Telecom is of the opinion that these claims are
without merit and circumstantial at best, and has appointed legal advisors to
represent Vox Telecom employees. In this regard the Vox Telecom employees who
have been affected by the collapse of Dealstream have made a claim against
Dealstream for R89 million based on the closing out of CFD positions on 22
September 2008. It should be noted, however, that the Company will continue to
incur additional fees and expenses associated with the legal and forensic
actions being taken on behalf of the Company and its employees against
Dealstream and its associates. These costs will be expensed as incurred.
Delayed Transaction
The effect of the Dealstream collapse, the consequent effect on the Company`s
traded price per share, further compounded by the general price deflation in
public markets has caused the interruption of certain transactions. In
particular, the Company committed to an agreement whereby a BEE investor
committed to a subscription for shares in Vox which was not completed. The
company has reviewed its commercial and legal position with respect to this
transaction and will keep shareholders appropriately informed of developments.
DIRECTORS HOLDINGS AND NEW INCENTIVE SCHEME
The Company has met with its major shareholders and has discussed the need for
a new share incentive scheme for key personnel. Given the impact of the
Dealstream Events on the shareholding of the executive directors and certain
key staff the Board of Directors and shareholders recognise the need to ensure
that these key personnel`s compensation packages are appropriate.
The details of this scheme are still being finalised and will be communicated
in a detailed circular which will be subject to shareholder approval.
SHAREHOLDING IN VOX
As a result of the Dealstream events and following Rand Merchant Bank ("RMB")
taking over the Dealstream portfolio, the shareholder register of Vox has
materially changed. In this regard the summary of the major shareholders of
reference is as follows:
Key shareholders Number of Percentage
shares ownership
Lereko Metier Capital Growth 269 000 000 24.27%
Fund
RMB 259 817 700 23.44%
Mvelaphanda Group 137 500 000 12.40%
Public Investment Corporation 90 000 000 8.12%
Regiments Capital 47 000 000 4.24%
PSG Group 30 712 856 2.77%
Thembeka Capital 17 857 143 1.61%
Total Key Shareholding 851 887 699 76.85%
Note:
The percentage ownership of these major shareholders is based on the number of
1 108 501 698 shares in issue as at 18 November 2008.
As per the SENS announcement by FirstRand Bank Limited on 9 October 2008 and
following the Dealstream Events, RMB now holds a strategic position in Vox as
illustrated in the table above. It should be noted that the RMB position is
held via Single Stock Futures which will be closed out on expiry of the
futures contract whereafter RMB will take physical delivery of the shares.
DIRECTOR CHANGES
Mr Mutle Mogase and Mr Chris Lister James ("alternate") resigned as non-
executive directors on 21 November 2007. Mr Tshakalisa Matiwaza was appointed
executive director on 30 January 2008, representing Mvelaphanda Group Limited
on conclusion of the acquisition of Storm. Mr Pierre Joubert was appointed as
a non-executive director on 27 October 2008, to represent the shareholding of
RMB, following the Dealstream Events. The board is currently in the process of
finalising the appointment of a further two independent non-executive
directors.
DIVIDENDS
With the application of cash generated from operations being focussed on the
acquisition of annuity income streams and the continued investment in our
network infrastructure and new initiatives, the directors have decided not to
declare a dividend for the year under review.
GENERAL
The board of directors would like to thank the management and all employees
for the contribution they have made to the continued growth in the Company
which has resulted in the successes of the past year.
By order of the Board
AP van Marken DG Reed
Chairman Chief Executive Officer
19 November 2008
Johannesburg
Registered Office
Block D, Rutherford Estate,1 Scott Street, Waverley, 2090
Directors
AP van Marken, DG Reed , CM von Holdt, GP Sweidan, JA du Toit,
RT Dalais*, NN Gwagwa*, T Matiwaza* ,P Joubert*
* Non-executive
Designated Adviser Transfer Office
PSG Capital (Pty) Ltd Computershare Investor Services 2004
(Pty) Ltd
Date: 19/11/2008 09:00:01 Supplied by www.sharenet.co.za
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