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CVN - ConvergeNet Holdings Limited - Unaudited interim results for the six
months ended 28 February 2011
ConvergeNet Holdings Limited and its subsidiaries
(Registration number 1998/015580/06)
JSE code: CVN ISIN: ZA000102067
Unaudited interim results for the six months ended 28 February 2011
Highlights from continuing operations:
Revenue up 20% Operating profit up 63% EPS up 30% Tangible NAV up 62%
Condensed Consolidated Statement of Comprehensive Income
Unaudited Unaudited Audited
6 months 6 months year
ended ended ended
28 Feb 2011 28 Feb 2010 31 Aug 2010
R`000
Continuing operations
Revenue 496 572 413 291 784 325
Cost of sales (370 299) (295 138) (539 508)
Gross profit 126 273 118 153 244 817
Other income 1 238 1 390 11 409
Operating expenses (108 319) (107 754) (228 872)
Operating profit 19 192 11 789 27 354
Investment income 1 745 2 575 5 122
Share of profit of associates 3 511 942 2 709
Finance costs (1 265) (1 440) (4 522)
Profit before taxation 23 183 13 866 30 663
Taxation (5 450) (503) (4 967)
Profit for the period
from continuing operations 17 733 13 363 25 696
Discontinued operations
Profit for the period from
discontinued operations - 6 104 10 606
Profit for the period 17 733 19 467 36 302
Other comprehensive income - - -
Total comprehensive income for
the year 17 733 19 467 36 302
Attributable to:
Equity holders of the parent
Profit for the period from
continuing operations 11 897 9 186 17 727
Profit for the period from
discontinued operations - 4 517 7 848
11 897 13 703 25 575
Non-controlling interests
Profit for the period from
continuing operations 5 836 4 177 7 969
Profit for the period from
discontinued operations - 1 587 2 758
5 836 5 764 10 727
17 733 19 467 36 302
Earnings per share
Basic earnings per ordinary share (cents)
From continuing operations 1.34 1.03 2.00
From discontinued operations - 0.50 0.89
1.34 1.53 2.89
Fully diluted basic earnings per
ordinary share (cents)
From continuing operations 1.33 1.02 1.98
From discontinued operations - 0.50 0.88
1.33 1.52 2.86
Weighted average number of shares 890 568 322 895 611 179 885 819 513
Fully diluted weighted average
number of shares 896 865 941 903 365 941 893 990 941
Total number of shares in issue 915 115 941 915 115 941 915 115 941
Headline earnings per share
From continuing operations 1.35 1.04 1.11
From discontinued operations - 0.49 0.87
1.35 1.53 1.98
Fully diluted headline earnings
per share (cents)
From continuing operations 1.34 1.03 1.10
From discontinued operations - 0.49 0.87
1.34 1.52 1.97
Reconciliation between basic and
headline earnings
From continuing operations
Basic earnings attributable to
equity holders of parent 11 897 9 186 17 727
Loss/(profit) on disposal of assets 130 211 1 713
(Profit) on disposal of assets of
associates - (22) -
(Profit) on disposal of subsidiaries
and associates - - (12 625)
Portion of adjustments attributable to
non-controlling interests - (58) 1 345
Headline earnings from continuing
operations12 027 9 317 8 160
Headline earnings from discontinued
operations - 4 426 7 743
12 027 13 743 15 902
Net asset value per share (cents) 51.6 48.5 49.8
Net tangible asset value
per share (cents) 29.4 18.2 27.3
Condensed Consolidated Statement of Financial Position
Unaudited Unaudited Audited
as at as at as at
28 Feb 28 Feb 31 Aug
2011 2010 2010
R`000 R`000 R`000
ASSETS
Non-current assets
Property, plant and equipment 32 111 28 708 28 638
Goodwill 184 893 247 687 184 893
Intangible assets 18 074 30 109 21 693
Investments in associates 28 038 4 595 26 347
Other financial assets 37 917 - 37 346
Deferred taxation 27 392 31 217 23 093
328 425 342 316 322 010
Current assets
Inventories 92 022 46 147 78 166
Loans to group companies - 12 380 -
Other financial assets 9 309 33 369 19 867
Current tax receivable 1 861 5 279 3 122
Trade and other receivables 251 640 229 962 227 155
Cash and cash equivalents 45 126 49 106 77 184
399 958 376 243 405 494
TOTAL ASSETS 728 383 718 559 727 504
EQUITY AND LIABILITIES
Total equity
Shareholders` equity 471 891 444 178 456 073
Non-controlling interest 62 823 82 868 56 992
534 714 527 046 513 065
Liabilities
Non-current liabilities
Other financial liabilities 17 296 7 104 17 507
Finance lease obligation 1 644 1 838 1 446
Operating lease liability 1 219 - 1 077
Deferred taxation 8 929 15 950 8 293
29 088 24 892 28 323
Current liabilities
Vendors for acquisition 2 407 3 693 4 063
Other financial liabilities 1 866 3 038 3 596
Current tax payable 7 637 15 069 5 453
Finance lease obligation 568 307 778
Provisions 6 450 4 185 5 478
Trade and other payables 129 467 128 795 152 253
Bank overdraft 16 186 11 534 14 495
164 581 166 621 186 116
Total liabilities 193 669 191 513 214 439
TOTAL EQUITY AND LIABILITIES 728 383 718 559 727 504
Condensed Consolidated Statement of Cash Flows
Unaudited Unaudited Audited
6 months 6 months year
ended ended ended
28 Feb 28 Feb 31 Aug
2011 2010 2010
R`000 R`000 R`000
Operating activities
Cash used in operations (27 894) (19 440) (48)
Finance income 1 174 2 575 5 024
Finance costs (1 167) (1 342) (4 327)
Tax paid (5 668) (16 381) (25 418)
From discontinued operations - 6 525 9 268
Net cash used in operating activities (33 555) (28 063) (15 501)
Net cash from/(used in)
investing activities 3 513 (7 055) 20 539
Net cash used in financing activities (3 707) (16 321) (31 360)
Net decrease in cash and
cash equivalents (33 749) (51 439) (26 322)
Cash at beginning of the year 62 689 89 011 89 011
Total cash at end of the period 28 940 37 572 62 689
Condensed Consolidated Statement of Changes in Equity
Unaudited Unaudited Audited
as at as at as at
28 Feb 28 Feb 31 Aug
2011 2010 2010
R`000 R`000 R`000
Balance at beginning of the year 513 065 510 253 510 253
Net profit for the year 17 733 19 467 36 302
Issue of treasury shares in terms of
forfeitable share plan 4 884 4 672 9 555
Acquisition of subsidiaries - 4 850 4 850
Transactions with non-controlling
shareholders (968) (1 910) (28 679)
Expenses recognised directly in equity - (8) (8)
Own shares acquired by subsidiaries,
held as treasury shares - (3 090) (5 575)
Subsidiary sold - - (5 146)
Dividends by subsidiaries to
non-controlling shareholders - (7 188) (8 487)
Balance at end of the year 534 714 527 046 513 065
Condensed Segmental Information
IT infrastructure Telecom infrastructure
technology solutions technology solutions
Feb Feb Feb Feb
2011 2010 2011 2010
R`000 R`000 R`000 R`000
From continuing
operations
Revenue 400 639 321 484 95 933 91 807
Profit from operations 19 750 10 902 7 433 9 055
Investment income 284 1 889 228 892
Share of profits of
associated
146 942 - -
Finance Costs (640) (1 131) (527) (309)
Profit before tax 19 540 12 602 7 134 9 638
Income tax
(expenses)/benefit
(6 303) (3 414) (2 452) (2 624)
Profit for the year
from continuing
operations
13 237 9 188 4 682 7 014
Profit/(loss) for the
period from
discontinued
operations
- - - 6 326
Profit for the year 13 237 9 188 4 682 13 340
Condensed Segmental Information (Continued ......)
Corporate,
consolidation and other
Total
Feb Feb Feb Feb
2011 2010 2011 2010
R`000 R`000 R`000 R`000
From continuing
operations
Revenue - - 496 572 413 291
Profit from operations (7 991) (8 168) 19 192 11 789
Investment income 1 233 (206) 1 745 2 575
Share of profits of
associated
3 365 - 3 511 942
Finance Costs (98) - (1 265) (1 440)
Profit before tax (3 491) (8 374) 23 183 13 866
Income tax
(expenses)/benefit
3 305 5 535 (5 450) (503)
Profit for the year
from continuing
operations
(186) (2 839) 17 733 13 363
Profit/(loss) for the
period from
discontinued operations
- (222) - 6 104
Profit for the year (186) (3 061) 17 733 19 467
Commentary
1. Statement of compliance
The condensed consolidated financial information has been prepared in
accordance with IAS 34 - Interim financial reporting and is a summary of the
unaudited financial statements of the group for the six months ended 28
February 2011, which have been prepared in accordance with International
Financial Reporting Standards ("IFRS"), the Listings Requirements of the JSE
Limited, and the Companies Act of South Africa.
2. Accounting policies
The unaudited results for the six months ended 28 February 2011 have been
prepared in accordance with the group`s accounting policies which comply with
IFRS. The accounting policies adopted are consistent with those applied in the
previous financial year except for the adoption of all new, revised or amended
standards and interpretations which were effective for the group from 1
September 2010.
3. Corporate governance
The directors of ConvergeNet endorse the Code of Corporate Practices and
Conduct as set out in the King Committee Report on Corporate Governance ("King
Code") and recognise their responsibility to conduct the affairs of
ConvergeNet with integrity and accountability in accordance with generally
accepted corporate practices. This includes timely, relevant and meaningful
reporting to its shareholders and other stakeholders, providing a proper and
objective perspective of ConvergeNet.
4. Change in board of directors
Mr David Braine resigned from the board with effect from 13 January 2011.
5. Operating results
During the period trading conditions improved slightly and although not
reflected in these results, the group concluded a long awaited contract.
Revenue increased by 20% to R497 million, whilst the gross profit margin
decreased slightly from 29% to 25% compared to the corresponding period, as a
result of the business mix.
The operating profit from continuing operations increased by 63% to R19
million compared to the corresponding period primarily as a result of the
increase in revenue and an improved cost to income ratio.
As a result of the increase in revenue and operating profits from continuing
operations, earnings per share from continuing operations increased by 30% and
headline earnings per share from continuing operations increased by 30%
compared to the corresponding period.
Following the sale of a controlling interest in FutureCell in the previous
financial period, the corresponding period`s results are restated by
disclosing the net results relating to FutureCell as profit from discontinued
operations. The profit for the period attributable to ConvergeNet`s remaining
20% interest has been included in share of profits from associates.
The financial position of the group remains strong with the only interest-
bearing debt being those relating to mortgage bonds on certain properties and,
primarily as the result of the FutureCell sale in the previous financial
period, the net tangible asset value per share increased by 61% to 29 cents
per share compared to the corresponding period.
The cash used in operations was primarily due to an increased investment in
net working capital of R61m, the majority of which have been recovered
subsequent to the end of the reporting period.
6. Corporate activities
Effective 1 September 2010, ConvergeNet acquired an additional 20% interest in
Structured Connectivity Solutions (Pty) Ltd ("SCS") for a purchase
consideration of R300 000 and an additional 15% in Xdsl Networking (Pty) Ltd
("Xdsl") for a purchase consideration of R667 771. These purchase
considerations were settled in cash.
Following the above, ConvergeNet now has a 90% interest in SCS and a 66%
interest in Xdsl.
7. Dividend
The declaration of cash dividends will continue to be considered by the board
in conjunction with an evaluation of current and future funding requirements
and will be adjusted to levels considered appropriate at the time of
declaration.
8. Industry and group outlook
There continues to be substantial demand for the group`s products, solutions
and services. We are cautiously optimistic about the next period and expect to
improve earnings and strengthen the annuity income as a result of newly
awarded managed services contracts.
The directors of ConvergeNet are satisfied that the fundamentals of the
businesses remain sound and the group will continue to cautiously invest in
previously identified strategic growth areas.
9. Post balance sheet events
There have been no significant events subsequent to the six months ended 28
February 2011 up until the date of this report that require adjustments or
disclosure.
10. Conclusion
ConvergeNet thanks all our stakeholders. We are grateful for the continued
commitment and support of our customers, employees, suppliers and
shareholders.
For and on behalf of the board
SLL PeteniPWJ Bouwer
Chairman Chief executive officer
Pretoria
06 May 2011
Directors: SLL Peteni *(Chairman), PWJ Bouwer (CEO), DF Bisschoff (CFO), G
Edwards, B Kekana*, NR Macdonald*, MJ Krastanov*, L Mangope*, T Modise, MI
Scott*, SSwana*, DD Tabata*, H van Dyk
(*Non-executive)
Company secretary and registered Office: Arcay Client Support (Pty) Ltd, Arcay
House II, Number 3 Anerley Road, Parktown 2193
Business address: Unit 5, Tijger Valley Office Park, Silver Lakes Road, Tijger
Valley 0181
Postal address: PO Box 73174, Lynnwood Ridge 0040
Transfer secretaries: Computershare Investor Services (Pty) Ltd, 70 Marshall
Street, Johannesburg 2001
Sponsor: ArcayMoela Sponsors (Pty) Ltd, Arcay House II, Number 3 Anerley Road,
Parktown 2193
E-Mail: info@convergenet.co.za
Web: www.convergenet.co.za
Date: 06/05/2011 15:55:02 Supplied by www.sharenet.co.za
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