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Pinnacle - Audited results for the year ended 30 June 2005 and cautionary

Release Date: 08/09/2005 17:56
Code(s): PNC
Wrap Text

Pinnacle - Audited results for the year ended 30 June 2005 and cautionary Pinnacle Technology Holdings Limited (Registration number 1986/000334/06) Share code: PNC * ISIN: ZAE000022570 ("Pinnacle" or "the Group" or "the Company") Audited results for the year ended 30 June 2005 and cautionary announcement Group income statement for the year ended 30 June 2005 2004
R"000 R"000 Revenue 715 468 497 202 Cost of sales (594 015) (413 289) Gross profit 121 453 83 913 Operating expenses (79 904) (59 965) EBITDA 41 549 23 948 Depreciation (3 912) (3 389) Amortisation of intangibles (2) (431) Operating profit 37 635 20 128 Share of net profit from associates - 2 134 Profit before interest 37 635 22 262 Interest received 3 790 2 706 Interest paid (4 479) (4 407) Profit before taxation 36 946 20 561 Taxation (12 291) (6 386) Net profit after taxation 24 655 14 175 Net profit attributable to minority shareholders (2 248) (1 513) Net profit for the year 22 407 12 662 Weighted average number of shares in issue ("000) 148 446 149 020 Earnings per share (cents) 15,1 8,5 Headline earnings per share (cents) 15,1 8,9 Reconciliation of headline earnings Net profit for the year 22 407 12 662 Amortisation of goodwill - 431 Impairment of investments and loans - 100 Headline earnings 22 407 13 193 Segmental report for the year ended 30 June 2005 2004
R"000 R"000 Revenue Infrastructure and support 519 524 472 996 Software and storage 188 790 16 721 ICT services 5 405 5 241 Telecommunication 1 749 2 244 Holdings and properties - - Total group 715 468 497 202 EBITDA Infrastructure and support 33 816 25 018 Software and storage 8 194 2 050 ICT services 3 780 876 Telecommunication (2 789) (3 092) Holdings and properties (1 452) (904) Total group 41 549 23 948 Group balance sheet as at 30 June 2005 2004 R"000 R"000 Assets Non-current assets 50 399 62 365 Property, plant and equipment 35 785 35 000 Intangible assets 9 608 3 707 Investments - 11 969 Deferred taxation 5 006 11 689 Current assets 223 461 132 425 Inventories 64 270 47 932 Trade and other receivables 96 626 55 116 Cash and cash equivalents 62 565 29 377 Total assets 273 860 194 790 EQUITY AND LIABILITIES Capital and reserves 106 386 91 783 Share capital and premium 126 094 126 066 Treasury shares (4 138) - Non-distributable reserves 9 729 9 663 Accumulated loss (25 299) (43 946) Minority shareholders" interest 2 590 1 670 Non-current liabilities 7 887 8 912 Interest-bearing liabilities 7 887 8 912 Current liabilities 156 997 92 425 Trade and other payables 140 055 76 671 Short-term loans 1 693 5 325 Current portion of interest-bearing liabilities 6 361 3 169 Warranty provisions 7 256 4 854 Taxation 1 632 2 406 Total equity and liabilities 273 860 194 790 Net asset value per ordinary share (cents) 75,0 61,6 Number of shares in issue ("000) 141 819 149 057 Summarised Group cash flow statement for the year ended 30 June 2005 2004 R"000 R"000 Cash flows from operating activities 40 137 31 962 Cash flows from investing activities 3 798 (11 025) Cash flows from financing activities (10 747) (3 003) Increase in cash and cash equivalents 33 188 17 934 Cash and cash equivalents at the beginning of the year 29 377 11 443 Cash and cash equivalents at the end of the year 62 565 29 377 Statement of changes in equity for the year ended 30 June Non- Share Share Treasury distribu- Accumu- capital premium shares table lated reserves loss Total
R"000 R"000 R"000 R"000 R"000 R"000 Balance at 1 July 2003 1 486 124 400 - 10 310 (56 608) 79 588 Issue of shares 5 175 - - - 180 Net profit for the year - - - - 12 662 12 662 Deferred taxation on revaluation of fixed property - - - (675) - (675) Movement in foreign currency translation reserve - - - 28 - 28 Balance at 30 June 2004 1 491 124 575 - 9 663 (43 946) 91 783 Issue of shares 1 27 - - - 28 Net profit for the year - - - - 22 407 22 407 Treasury shares bought - - (4 138) - - (4 138) Dilution of subsidiary shareholding - - - - (154) (154) Dividends declared - - - - (3 606) (3 606) Movement in foreign currency translation reserve - - - 66 - 66 Balance at 30 June 2005 1 492 124 602 (4 138) 9 729 (25 299) 106 386 Comments Accounting policies The results for the year ended 30 June 2005 have been prepared in accordance with South African statements of Generally Accepted Accounting Practice. The accounting policies used are consistent with those used in the preparation of the results for the year ended 30 June 2004. The results of Explix Technologies (Pty) Limited ("Explix") were proportionately consolidated in accordance with South African statements of Generally Accepted Accounting Practice as the Group acquired joint control with effect 1 July 2004. The Group results have been audited by the Group"s auditors, Grant Thornton, and their unqualified audit report is available for inspection at the Company"s registered office. Financial review Revenue increased by 43,9% (2004: 18,9%). Organic growth supported by significant volume increases attained through the penetration of government, mass retail and dealer sales markets accounted for 9,4% whilst the proportional consolidation of Explix contributed 34,5% to the growth of the consolidated results. When analysed against the weaker US dollar, the organic growth in turnover shows a year-on-year increase of 18,8% compared to the previous year (2004: 55,3%) during which period the rand strengthened by an average 7,8% (2004: 23,4%). Combined with a broader client base, a diverse product range contributed to the increase in gross profit to 17,0% (2004: 16,9%) of turnover. Savings in legal fees and other administrative expenses allowed the cost base of the Group to remain stable, reducing overall operating expenses to 11,2% of turnover (2004: 12,1%). Earnings before interest, tax, depreciation and amortisation ("EBITDA") increased to R41,5 million (2004: R23,9 million) or 5,8% of turnover (2004: 4,8%). Interest paid remained steady at R4,4 million (2004: R4,4 million) due to the improved working capital of the Group and application of the available cash to reduce short-term financial requirements. Interest received increased to R3,8 million (2004: R2,7 million) as a treasury function was established during the year to maximise returns on available assets. Net profit attributable to minority shareholders increased to R2,2 million (2004: R1,5 million) primarily as a result of significantly improved operational results of Pinnacle Micro Cape (Pty) Limited and RentNet Rentals (Pty) Limited. Segmental review of operations Infrastructure and support Infrastructure and support remains the core of the Pinnacle group of companies, contributing 72,6% (2004: 95,1%) to the overall turnover and 81,4% (2004: 105%) of the EBITDA results of the Group. Infrastructure and support is represented by Pinnacle Micro styled branches located at eight major business centres in South Africa, Namibia and Botswana. Focused marketing and pricing strategies during the latter part of the year contributed significantly to attract and retain new clients. Additional revenue streams were introduced through the use of existing infrastructure, whilst exciting new products and technologies such as Proline plasma and CCTV were introduced. Existing technologies and stock holding were also expanded to further secure dealer loyalty. Software and storage The Software and storage group increased its turnover by R172 million on the proportional consolidation of Explix. In line with the strategic objective to expand Pinnacle"s presence to other product groups, the software and storage group now contributes 26,4% (2004: 3,4%) to the overall turnover and 19,7% (2004: 8,6%) to the EBIDTA results of the Group. ICT services The ICT services group results were significantly improved on the disinvestment of a loss-making subsidiary, Assuage Management Services (Pty) Limited, at the beginning of the financial year and provisions raised in favour of outstanding loans to that subsidiary. Discounting the above provisions on the outstanding loans shows an increase in the year-on-year EBITDA results to R2,5m (2004: R0,9) with returns on revenue amounting to 46,3% (2004: 16,8%). The momentum generated in the provision of short-term technology rentals shall continue to benefit from experience gained and the clientele won during the past three years. Telecommunication The year has however brought its share of disappointment. As a result of legislative changes deregulating the telecommunication industry and the impact of Telkom"s reduced international call charges, the initial prospects of the telecommunications group have not been met. We have addressed this by refocusing the business group on the delivery of telecommunication hardware platforms rather than the delivery of international least cost routing services. New products have been tested and respective agencies secured to support the revitalisation of the Telecommunication group in Pinnacle. Holdings and properties A contra entry effected in the holdings and properties group to recognise the negative impact of the provision raised on the outstanding loans to Assuage Management Services (Pty) Limited generated the bulk of the loss of R1,4 million (2004: R0,9 million) in that operating group. Acquisitions Shareholders are referred to the announcement released on SENS on 25 October 2004 in terms of which Pinnacle acquired the further 15% of the ordinary shareholding of Explix, for an amount of R6,1 million, taking its shareholding in the company up to 50% (2004: 35%). Goodwill increased by R4,7 million as a result of this transaction whilst a further R1,1 million was reallocated from investments to intangibles to describe the nature of the asset more accurately. Shareholders are also referred to the announcement published in the press on 9 June 2005 advising that Pinnacle entered into a sale of shares agreement to acquire the remaining 35% shareholding in Pinnacle Micro Cape (Pty) Limited from Craig Nowitz, Timothy Humphreys-Davies and Rudolf Thietz, the current management team, who are also directors of Pinnacle Micro Cape (Pty) Limited ("the acquisition"). In terms of the Listings Requirements of the JSE, the acquisition is a related party transaction and requires a fair and reasonable opinion from an independent financial adviser appointed by the board of directors. The board of directors have appointed Grant Thornton Corporate Finance (Pty) Limited as the independent financial adviser. The acquisition is subject to approval by Pinnacle shareholders at a general meeting to be convened for that purpose. Details of the acquisition and of Pinnacle Micro Cape (Pty) Limited are set out in a separate circular to shareholders which will be posted to shareholders on or about 27 September 2005. Black Economic Empowerment Pinnacle is in advanced negotiations with a notable BEE legal entity regarding a transaction in terms of which the BEE entity will acquire up to 20% shareholding in Pinnacle. The BEE transaction will be subject to shareholder and JSE approval. The Pinnacle Group has subscribed to BEE transformation in its broadest sense. Pinnacle"s transformation encompasses the advancement of historically disadvantaged individuals over a wide front including skills development, employment equity, advancement in the workplace, procurement practices, enterprise creation and equity ownership of the company. Pinnacle therefore proposes to convert the existing Pinnacle Share Purchase Scheme into a share incentive scheme for black senior employees of the Pinnacle Group. The purpose of the Pinnacle BEE Share Purchase Scheme is to incentivise black senior employees of the Pinnacle Group to promote profit growth in the Pinnacle Group, to simultaneously increase the black shareholding of Pinnacle, and to encourage black senior employee retention. The creation of the Pinnacle BEE Share Purchase Scheme is subject to the shareholders approving the adoption of a new trust deed at a general meeting convened for that purpose. Details of the Pinnacle BEE Share Purchase Scheme are set out in a separate circular to shareholders which will be posted to shareholders on or about 27 September 2005. Together with existing black shareholders, the above transactions will result in Pinnacle having up to 35% BEE shareholding. Corporate governance Pinnacle is committed to the principles of transparency, integrity and accountability espoused in the King Code of Corporate Practices and Conduct. There have been no changes in the board of directors during the year under review. Prospects Pinnacle is perfectly poised to enter new vertical markets to complement its existing client base and remains committed to the development of ICT product ranges to build on the synergies of the convergent communication and information technologies. The Group"s focused channel management team is empowered to identify and source new technology products that, as often as not, differ from the traditional component based offering. Annual general meeting and general meeting of shareholders Pinnacle will on or about 27 September 2005 post to shareholders the 2005 annual report, which annual report will incorporate a notice of the annual general meeting of shareholders to be convened for 10:00 on Friday, 28 October 2005. Pinnacle will also on or about 27 September 2005 post to shareholders a circular containing the relevant information in respect of the acquisition and the Pinnacle BEE Share Purchase Scheme, which circular will incorporate a notice of a general meeting of shareholders to be convened for 11:00 on Friday, 28 October 2005 (or immediately after conclusion of the abovementioned annual general meeting, to be held at 10:00 on 28 October 2005). Dividends Notice is hereby given that on 2 September 2005 the board of directors proposed a dividend of 4 cents (2004: 1,5 cents) per share for the year ended 30 June 2005, subject to shareholder approval. This dividend will be paid to ordinary shareholders recorded as such in the register of the Company at the close of business on Friday, 18 November 2005. The last day to trade to participate in this dividend is Friday, 11 November 2005. The shares will commence trading ex- dividend from Monday, 14 November 2005. Important dates pertaining to this dividend are as follows: Last day to trade "CUM" dividend Friday, 11 November 2005 Shares trade "EX" dividend Monday, 14 November 2005 Record date Friday, 18 November 2005 Payment date Monday, 21 November 2005 Share certificates may not be dematerialised or rematerialised from Monday, 14 November 2005 to Friday, 18 November 2005, both days inclusive. Cautionary announcement As a result of the ongoing negotiations regarding the acquisition of a 20% shareholding by a BEE entity, shareholders are advised to exercise caution when dealing in the Company"s securities until a full announcement is made. For and on behalf of the Board CD Biddlecombe AJ Fourie Midrand Chairman Chief Executive Officer 8 September 2005 Registered office: Pinnacle Park, 269 16th Road, Randjiespark, Midrand Transfer Secretaries: Computershare Investor Services 2004 (Pty) Limited, Ground Floor, 70 Marshall Street, Johannesburg 2001 Executive directors: AJ Fourie (Chief Executive Officer), TA Tshivhase Non-executive directors: CD Biddlecombe (Chairman), A Tugendhaft Sponsor: Deloitte & Touche Sponsor Services (Pty) Limited, (Incorporated in the Republic of South Africa), (Registration number 1996/000034/07) www.pinnacle.co.za Date: 08/09/2005 05:56:11 PM Supplied by www.sharenet.co.za Produced by the JSE SENS Department

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