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PNC - Pinnacle Technology Holdings Limited - Unaudited interim results for the
six months ended 31 December 2008
PINNACLE TECHNOLOGY HOLDINGS LIMITED
(Registration number 1986/000334/06)
Share code: PNC
ISIN: ZAE000022570
("Pinnacle" or "the Group")
www.pinnacle.co.za
UNAUDITED INTERIM RESULTS for the six months ended 31 December 2008
FINANCIAL SUMMARY
Revenue increased by 39% to R1,354 billion
Operating profit decreased by 7,3% to R66 million
HEPS decreased by 11,4% to 30,4 cents per share
GROUP INCOME STATEMENT
6 months 6 months 12 months
ended ended ended
31 Dec 31 Dec 30 Jun
2008 2007 2008
Unaudited Unaudited Audited
R`000 R`000 R`000
Revenue 1 354 053 974 372 2 496 300
Cost of sales (1 139 087) (804 151) (2 115 785)
Gross profit 214 966 170 221 380 515
Operating expenses (144 617) (96 447) (222 121)
Selling and
distribution (5 175) (9 799) (21 148)
Employee expenses (92 678) (73 733) (173 657)
Administration (20 965) (15 871) (34 578)
Profit and loss on
exchange (25 799) 2 956 7 262
EBITDA 70 349 73 774 158 394
Depreciation (4 095) (2 476) (5 317)
Impairment of
intangible assets (5) (77) (1 357)
Amortisation (248) - (453)
Operating profit
before interest 66 001 71 221 151 267
Investment income 3 758 2 702 6 053
Finance costs (6 323) (3 102) (10 770)
Net profit before
taxation 63 436 70 821 146 550
Taxation (17 770) (19 830) (41 712)
Net profit for the
period 45 666 50 991 104 838
Attributable to:
Ordinary shareholders 44 269 51 106 102 882
Minority shareholders 1 397 (115) 1 956
Returns % % %
Gross profit 15,9 17,5 15,2
EBITDA 5,2 7,6 6,3
Net profit 3,4 5,2 4,2
Performance per share
Earnings per share (cents)
- Normal 30,4 34,3 69,3
Headline earnings per
share (cents)
- Normal 30,4 34,3 70,0
- Fully diluted 24,9 28,0 57,2
Reconciliation of headline
earnings
Net profit for the period
attributable to ordinary
shareholders 44 269 51 106 102 882
Add back:
- Impairment of intangible
Assets 4 77 977
Headline earnings - normal 44 273 51 183 103 859
Add back:
- Deemed finance charges
less taxation 1 232 1 099 2 288
Headline earnings
- fully diluted 45 505 52 282 106 147
Shares in issue (`000)
- Weighted average 145 498 149 186 148 411
- Fully diluted 182 779 186 467 185 693
SEGMENTAL REPORT
6 months 6 months 12 months
ended ended ended
31 Dec 31 Dec 30 Jun
2008 2007 2008
Unaudited Unaudited Audited
R`000 R`000 R`000
Revenue
Pinnacle Micro 767 326 538 606 1 464 144
WorkGroup 487 915 361 560 854 978
RentNet 15 543 14 008 20 441
DataNet 83 269 60 154 156 659
Holdings and properties - 44 78
Total Group 1 354 053 974 372 2 496 300
EBITDA
Pinnacle Micro 22 333 51 055 110 541
WorkGroup 36 313 16 669 35 671
RentNet 4 958 4 126 5 543
DataNet 5 077 (1 087) 4 584
Holdings and properties 1 668 3 011 2 055
Total Group 70 349 73 774 158 394
Assets
Pinnacle Micro 502 354 366 573 445 587
WorkGroup 341 169 239 552 337 301
RentNet 16 701 15 835 13 599
DataNet 43 362 33 734 44 517
Holdings and properties 70 848 60 604 67 179
Total Group 974 434 716 298 908 183
Liabilities
Pinnacle Micro (372 785) (274 384) (316 351)
WorkGroup (276 369) (205 366) (290 044)
RentNet (7 058) (9 019) (6 003)
DataNet (40 294) (37 684) (44 720)
Holdings and properties 27 481 50 740 30 617
Total Group (669 025) (475 713) (626 501)
GROUP BALANCE SHEET
31 Dec 31 Dec 30 Jun
2008 2007 2008
Unaudited Unaudited Audited
R`000 R`000 R`000
ASSETS
Non-current assets 127 900 112 688 126 046
Property, plant and
equipment 58 702 49 351 56 602
Intangible assets 54 396 46 659 52 971
Trust loans 11 050 11 733 12 261
Deferred taxation 3 752 4 945 4 212
Current assets 846 534 603 610 782 137
Inventories 298 123 211 595 260 440
Trade and other
receivables 548 882 369 283 444 498
Cash and cash
equivalents (471) 22 732 77 199
Total assets 974 434 716 298 908 183
EQUITY AND LIABILITIES
Capital and reserves 305 409 240 585 281 682
Share capital and
premium 167 629 167 614 167 629
Treasury shares (18 948) (3 971) (18 447)
Non-distributable
reserves 7 563 5 274 7 029
Accumulated (loss)/
profit 151 085 76 938 128 715
Minority shareholders`
interest (1 920) (5 270) (3 244)
Non-current liabilities
Interest-bearing
liabilities 50 016 45 272 48 587
Current liabilities 619 009 430 441 577 914
Trade and other
payables 596 553 367 736 544 260
Current portion of
interest-bearing
liabilities 10 902 10 848 10 769
Warranty provisions 9 421 9 361 9 498
Taxation 2 133 42 496 13 387
Total equity and
liabilities 974 434 716 298 908 183
Valuation per fully
diluted share
Net asset value
per share (cents) 168,2 132,0 155,8
Net tangible asset value
per share (cents) 138,4 107,0 126,8
Fully diluted number of
ordinary shares in
issue at the end of
the period (`000) 182 705 186 200 182 905
Working capital management
Inventory days 47,9 47,4 38,2
Debtors days 65,1 59,8 55,5
Creditors days 84,1 72,2 82,4
Liquidity and solvency
Debt ratio (%) 19,5 15,8 18,7
Current asset ratio 1,37 1,40 1,35
Acid test ratio 0,89 0,91 0,90
SUMMARISED GROUP CASH FLOW STATEMENT
6 months 6 months 12 months
ended ended ended
31 Dec 31 Dec 30 Jun
2008 2007 2008
Unaudited Unaudited Audited
R`000 R`000 R`000
Cash and cash equivalents
at the beginning of
the period 77 199 88 192 88 192
Cash from operations 67 666 74 801 151 765
Cash utilised in working
capital (89 774) (101 730) (14 084)
Taxation paid (28 600) (7 238) (59 466)
Distribution to
shareholders (21 972) (18 891) (18 891)
Cash utilised in
investing activities (7 866) (9 145) (49 147)
Increase in third party
liabilities 2 876 714 1 542
Treasury shares acquired - (3 971) (22 712)
Cash and cash equivalents
at the end of
the period (471) 22 732 77 199
GROUP STATEMENT OF CHANGES IN EQUITY
6 months 6 months 12 months
ended ended ended
31 Dec 31 Dec 30 Jun
2008 2007 2008
Unaudited Unaudited Audited
R`000 R`000 R`000
Opening balance 281 682 212 408 212 408
Issue of shares - 75 89
Net profit for the period 44 269 51 106 102 882
Treasury shares bought (501) (3 971) (22 823)
Treasury shares issued - - 4 376
Dividends received/
(declared) (21 899) 86 90
Share premium reduction - (18 707) (18 707)
Revaluation of property - - 2 599
Deferred tax on revaluation - - (364)
Movement in foreign currency
translation reserve 534 92 (390)
Movement in minority
shareholders`interest 1 324 (504) 1 522
305 409 240 585 281 682
COMMENTS
Introduction
Pinnacle is a diversified Information and Communications Technology distribution
group, active in all areas of ICT hardware, software and services. We offer a
world-class selection of international branded products including Microsoft,
VMWare, Sony, Apacer, Hewlett-Packard, Intel, Dell and IBM, along with our own
Proline range of ICT equipment.
Product and services sales are handled through individual focused business
units, each with its own area of expertise.
Results of operations
During the six months ended 31 December 2008, Group revenue increased by 39% to
R1,354 billion compared to the corresponding six-month period to 31 December
2007.
Pinnacle Micro
Revenue increased by 42% to R767,3 million, as all lines of business achieved
revenue and gross profit targets, apart from the Government unit, which was
refocused to recapture service delivery in H2 2009.
In line with expectations, the addition of tier-one brands into the Pinnacle
portfolio had a dilutionary impact on gross profit margins. Reduced technical
support cost on these product sets and improved efficiencies have however
contributed to realise an adjusted EBITDA (adjusted for the exceptional foreign
exchange loss below) of 7,1% (31 December 2007: 9,5%).
The extraordinary devaluation of the South African Rand in October 2008 gave
rise to a material foreign exchange loss of R33 million in this business unit.
The policy utilised and successfully applied prior to this event has been
assessed by the Pinnacle Board and revised to consider maximum exposure
parameters, whereby exposure to currency fluctuations is limited.
WorkGroup
WorkGroup`s impressive EBITDA earnings of R36,3 million for the half year ended
31 December 2008 (31 December 2007: R16,6 million) originate from the successful
roll-out of virtualisation technologies, the conclusion of several large
projects and the devaluation of the South African Rand. Sole distribution rights
were acquired for certain international software brands, recurring revenue
streams were doubled from a relatively modest base and logistical, rental and
other administrative costs were contained to realise a material improvement in
EBITDA margins of 89,7% from 3,9% (31 December 2007) to 7,4%.
RentNet
A refocused RentNet posted good gains to recover to pre-H2 2008 revenue levels,
recapturing market share in the technology rentals and conferencing support
markets. Interpretation and translation equipment was added to the rental fleet,
which was utilised to good effect in the Afriran and Sixth African Ministers
conferences.
DataNet
DataNet again contributed solid results, concentrating on consolidating its
market share, improving internal efficiencies, stock management and margin
protection during the six months to 31 December 2008, realising gross profit
growth of 71% against H1 2008.
Cash flow
The Group investment in working capital increased by R89,8 million to R250,4
million, as collective days sales outstanding increased to 65 days over the
traditionally tough December collection period. Collections were and continue to
be compounded by a marked tightening of cash flow in the market and settlement
extensions requested by certain retail and government clientele over the
December period.
In addition to the attention afforded to manage stock and collect debt, the
Pinnacle Board will continue to review facilities available to the Group to
ensure these remain adequate for the operational needs of the Group.
Prospects
Our expectations for the remainder of the year are moderated by the volatility
of the Rand and the effects of the global markets on South Africa. Whilst
operations are manageable at current exchange levels, further deterioration of
the South African Rand, should it occur, is expected to impact ICT spending in
the SME and retail segments.
Global market conditions have effectively limited and, in certain cases,
cancelled bank facilities previously available to our customers. The lack of
cash in the market is thus expected to impact negatively on collection terms and
may lead to an increase in collection charges over the remainder of the year.
Significant potential, however, remains. Attention will be afforded to develop
annuity-based revenues and to market, distribute and support technologies that
drive down overall cost of ICT ownership, targeted at our government and
corporate customer base. New, small form factor notebooks, known as Netbooks,
have introduced affordable, portable ICT solutions to value market segments, and
tier-one servers introduces another product set with which to target the
corporate market segment. Government continues to invest in the education of
citizens through investment in IT infrastructure. Value-added solutions to
address government initiatives in education, law enforcement and home affairs
require ongoing commitment and support, which Pinnacle is ready to provide on a
national basis.
Corporate activity
The acquisition of Tri-Continental Distribution (Pty) Limited was finalised
during the period under review.
Accounting policies
In terms of the Listings Requirements of the JSE Limited, the interim results
have been prepared in accordance with International Financial Reporting
Standards ("IFRS"), IAS34 - Interim Financial Reporting, the Listings
Requirements of the JSE Limited and the South African Companies Act. These
accounting policies are consistent with the policies employed in the preparation
of the audited financial results for the year ended 30 June 2008.
Corporate governance
The Group recognises the need to conduct its business with integrity,
transparency and equal opportunity and subscribes to the spirit of good
corporate governance as set out in the King II Report.
Subsequent events
No events material to the understanding of the report have occurred in the
period between the period-end date and the date of the report.
Dividends
In line with previous years, no interim dividend is proposed for the period
under review.
For and on behalf of the Board
CD Biddlecombe AJ Fourie
Chairman Chief Executive Officer
23 February 2009
Midrand
Directors: CD Biddlecombe* (Chairman), AJ Fourie (Chief Executive Officer), H
Coetzee (Chief Financial Officer), HG Motau*, PM Moyo*, TAM Tshivhase, A
Tugendhaft*
* (Non-executive)
Registered Office: The Summit, 269, 16th Road, Randjespark, Midrand, 1685
Transfer Secretaries: Computershare Investor Services (Pty) Limited, Ground
Floor, 70 Marshall Street, Johannesburg, 2001
Auditors: BDO Simama Inc., 13 Wellington Road, Parktown, 2193
Sponsor: Deloitte & Touche Sponsor Services (Pty) Limited
Date: 23/02/2009 15:57:01 Supplied by www.sharenet.co.za
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