Wrap Text
PNC - Pinnacle Technology Holdings Limited - Unaudited interim results for
the six months ended 31 December 2011
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 2011
Revenue increased by 32% to R2.73 billion
EBITDA increased by 48% to R197 million
NPAT increased by 49% to R130 million
HEPS increased by 63% to 78.3 cents
GROUP CONSOLIDATED INCOME STATEMENT
Half Half Full
year year year
31 Dec 31 Dec 30 Jun
2011 2010 2011
Unaudited Unaudited Audited
R`000 R`000 R`000
Revenue 2 731 187 2 065 365 4 960 074
Cost of sales (2 300 686)(1 759 395)(4 215 662)
Gross profit 430 501 305 970 744 412
Operating expenses (233 566) (172 743) (421 478)
Selling and distribution (28 361) (17 519) (30 727)
Employee expenses (177 548) (137 264) (321 688)
Administration (40 732) (31 785) (82 835)
Discounting of finance leases 1 209 4 094 4 890
Profit on foreign exchange 11 866 9 731 8 882
EBITDA 196 935 133 227 322 934
Depreciation (7 698) (6 176) (13 588)
Impairment - (115) (12)
Amortisation (191) (107) (328)
Negative goodwill - - 5 199
Operating profit 189 046 126 829 314 205
Investment income 8 964 3 582 6 943
Finance costs (12 836) (3 779) (11 510)
Net profit before taxation 185 174 126 632 309 638
Taxation (55 213) (37 980) (87 297)
Net profit for the period 129 961 88 652 222 341
Owners of the Company 129 955 86 930 220 226
Non-controlling interests 6 1 722 2 115
GROUP CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Half Half Full
year year year
31 Dec 31 Dec 30 Jun
2011 2010 2011
Unaudited Unaudited Audited
R`000 R`000 R`000
Net profit for the period 129 961 88 652 222 341
Other comprehensive income
Exchange differences from
translating
foreign operations 500 (77) (374)
Total comprehensive income
for the period 130 461 88 575 221 967
Attributable to:
Owners of the Company 130 455 86 853 219 852
Non-controlling interests 6 1 722 2 115
Returns (%)
Gross profit 15.8 14.8 15.0
EBITDA 7.2 6.5 6.5
Net profit to Company owners 4.8 4.2 4.4
RECONCILIATION OF HEADLINE EARNINGS
Half Half Full
year year year
31 Dec 31 Dec 30 Jun
2011 2010 2011
Unaudited Unaudited Audited
R`000 R`000 R`000
Net profit attributable to
ordinary shareholders 129 955 86 930 220 226
Add back/(deduct):
Excess of fair value of business
combination acquisitions
over cost - - (5 199)
Impairment of intangibles - 115 -
Profit and loss on sale of assets (333) (214) (880)
Headline earnings 129 622 86 831 214 147
Weighted average shares
in issue (`000) 165 568 180 949 181 965
Earnings per share (cents)
Basic 78.5 48.0 121.0
Headline 78.3 48.0 117.7
SEGMENTAL ANALYSIS
Half Half Full
year year year
31 Dec 31 Dec 30 Jun
2011 2010 2011
Unaudited Unaudited Audited
R`000 R`000 R`000
Revenue
ICT Distribution 2 889 407 2 118 382 5 035 749
IT Projects and Services 46 757 28 553 158 559
Financial Services 12 698 12 128 22 778
Group Central Services - (27) 154
Less: Intergroup revenue (217 675) (93 671) (257 166)
2 731 187 2 065 365 4 960 074
EBITDA
ICT Distribution 184 244 125 517 297 850
IT Projects and Services 7 849 299 15 954
Financial Services 4 696 6 410 8 294
Group Central Services 146 1 001 836
196 935 133 227 322 934
Total assets
ICT Distribution 1 814 707 1 527 014 1 560 551
IT Projects and Services 24 223 15 555 16 149
Financial Services 127 382 29 899 66 390
Group Central Services 78 361 82 678 85 605
2 044 673 1 655 146 1 728 695
Total liabilities
ICT Distribution (1 409 415)(1 165 654)(1 172 133)
IT Projects and Services (14 821) (17 042) (6 915)
Financial Services (121 344) (25 266) (65 747)
Group Central Services 203 637 164 022 145 474
(1 326 806)(1 043 940)(1 099 321)
GROUP CONSOLIDATED ABRIDGED STATEMENT OF CASH FLOWS
Half Half Full
year year year
31 Dec 31 Dec 30 Jun
2011 2010 2011
Unaudited Unaudited Audited
R`000 R`000 R`000
Cash and cash equivalents at the
beginning of the period 3 685 187 088 187 088
Cash generated from operating
activities (244 772) (58 028) 133 230
Cash from operations 193 587 132 741 317 113
Cash utilised in working capital (373 610) (144 844) (80 707)
Taxation paid (64 749) (45 925) (103 176)
Cash flows from investing
activities (16 156) (170 442) (202 422)
Property, plant and equipment
acquired (9 611) (11 526) (22 050)
Proceeds on disposal of property,
plant and equipment - 1 283 1 885
Acquisition of software and other
intangible assets (3 046) (577) (2 048)
Acquisition of subsidiaries - (159 622) (159 622)
Acquisition of non-controlling
interests (3 500) - (20 587)
Cash flows from financing
activities (99 088) 59 531 7 132
Net (decrease)/increase in
interest-bearing liabilities (60 595) 75 529 113 514
Share capital acquired and
cancelled - - (31 984)
Treasury shares acquired (412) - (78 721)
Treasury shares issued - 12 505 30 305
Decrease in trust loan - - 3 516
Dividends paid to shareholders (38 081) (28 503) (29 498)
Decrease in cash and
cash equivalents (360 016) (168 939) (62 060)
Net overdraft acquired from
business combinations - (121 343) (121 343)
Cash and cash equivalents at
the end of the period (356 331) (103 194) 3 685
Cash and cash equivalents 37 948 48 903 87 407
Bank overdrafts (394 279) (152 097) (83 722)
GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 Dec 31 Dec 30 Jun
2011 2010 2011
Unaudited Unaudited Audited
R`000 R`000 R`000
ASSETS
Non-current assets 266 704 187 685 228 578
Property, plant and equipment 107 058 105 589 105 145
Intangible assets 63 395 56 880 60 541
Trust loans - 1 165 -
Deferred taxation 29 424 24 051 26 652
Finance lease receivable 66 827 - 36 240
Current assets 1 777 969 1 467 461 1 500 117
Inventories 770 867 515 209 576 384
Finance lease receivables 21 363 - 11 801
Current portion of loans
receivable 998 - -
Trade and other receivables 940 699 902 672 822 621
Taxation receivables 6 094 677 1 904
Cash and cash equivalents 37 948 48 903 87 407
Total assets 2 044 673 1 655 146 1 728 695
EQUITY AND LIABILITIES
Capital and reserves 717 866 611 206 629 374
Share capital and premium 112 024 143 993 112 009
Treasury shares (75 297) (13 964) (74 885)
Non-distributable reserves 31 782 31 502 31 204
Accumulated profits 645 749 445 440 560 786
Non-controlling interest 3 608 4 235 260
Non-current liabilities 59 840 81 389 66 869
Interest-bearing liabilities 48 024 70 172 55 230
Deferred tax 11 816 11 217 11 639
Current liabilities 1 266 967 962 551 1 032 452
Trade and other payables 844 784 763 565 863 743
Foreign exchange contracts - 8 120 -
Bank overdrafts 394 279 152 097 83 722
Short-term loan - - 52 088
Current portion of interest-
bearing liabilities 14 331 13 839 15 632
Warranty provisions 9 702 9 452 10 646
Taxation 3 871 15 478 6 621
Total equity and liabilities 2 044 673 1 655 146 1 728 695
Shares in issue (`000)
(excluding treasury shares) 165 568 183 328 165 528
Valuation
Net asset value per share (cents) 431.4 331.1 380.1
Net tangible asset value
per share (cents) 375.3 286.9 327.4
Working capital management
Inventory days 61.3 41.5 44.1
Debtors days 55.3 53.3 45.8
Creditors days 58.9 54.0 66.1
Liquidity and solvency
Long-term debt to equity (%) 8.34 13.32 10.62
Current asset ratio 1.40 1.52 1.45
Acid test ratio 0.79 0.99 0.89
GROUP CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Half Half Full
year year year
31 Dec 31 Dec 30 Jun
2011 2010 2011
Unaudited Unaudited Audited
R`000 R`000 R`000
Opening balance 629 374 538 919 538 919
Shares issued 16 10 (241)
Shares cancelled - - (31 984)
Comprehensive income for
the period 130 461 88 575 221 967
Treasury shares issued/(acquired) (412) 12 505 (48 416)
On acquisition of shareholding (3 492) 61 (21 374)
Dividends paid (38 081) (28 864) (29 497)
Closing balance 717 866 611 206 629 374
Attributable to:
Owners of the Company 714 258 606 971 629 114
Non-controlling interests 3 608 4 235 260
COMMENTARY
OVERVIEW
The Group achieved a pleasing performance for the six months to 31 December
2011 despite difficult trading conditions derived from the European
financial situation, although the Group`s results were assisted to some
degree by Rand weakness during the period. Activity held up in Pinnacle`s
ICT distribution operations while its projects and financial services
sectors showed good growth.
December is historically the highest cycle for working capital for the
Group, due to the investment in inventories which ensures that adequate
stocks are available ahead of the usual peak uptake by the public sector
during February and March and to guard against expected supply shortages
attributable to the Chinese New Year. The need to do this in the current
year, in particular, was exacerbated by the increased stock holding
necessary to cater for
anticipated shortages of hard disk drives caused by floods in Thailand.
Subsequent to the year-end the satisfactory public sector uptake and
worldwide stock shortages demonstrated that the decision to build up stocks
was a prudent one. The Group expects cash generation in the second half to
be as strong as it was in prior years.
FINANCIAL RESULTS
Group turnover increased by 32% to R2.73 billion, which was driven mainly
by the contribution of the Pinnacle Africa and AxizWorkgroup hardware
divisions, while software lost 11% turnover due to customers delaying their
software upgrades. Synergies arising out of the Axiz acquisition, together
with an increase in the overall turnover mix of higher margin products,
resulted in a strong 41% increase in gross profit. This represented an
improvement in gross margin to 15.8% from 14,8% for the corresponding
period last year and 15.0% for the full year immediately prior to the six-
month period under review.
Overheads were up by 35% over the prior period but this increase was below
the growth in gross profit. Besides the inclusion of Axiz for the full
period, the main increase driver was higher freight and distribution costs,
while other controllable expenses including salaries and administration
costs were held under control. Higher borrowings in the year generated an
additional R3.7 million net interest paid over the R0.2 million in the
prior period.
Taxation reduced slightly as a percentage of net profit and non-controlling
interests were all but eliminated from the attributable profit make-up in
this period, after the acquisition of almost all of the outside
shareholdings in Group subsidiaries during the previous year.
Attributable net profit after tax rose by 49.5% to R130 million. Headline
earnings per share increased by 63% to 78.3 cents per share. Headline
earnings per share was also boosted by the repurchase of 20 million shares
from Amabubesi Technology Holdings (Pty) Limited in June 2011.
FINANCIAL POSITION AND CASH FLOW
As mentioned in the overview above, the Group made a strategic decision to
commit to a higher investment than usual into inventories to guard against
anticipated shortages of hardware. It is particularly important not to run
short of stock ahead of the public sector peak demand leading up to the end
of March. The result was that stock days increased from 41.5 days in
December 2010 to 61.3 days at the end of the current period. The demand
patterns usually experienced in the second half of the year are expected to
return this level to normality before the end of the financial year.
Cash from operations grew by 45.8%, in a similar fashion to the growth in
profit, but the increased investment in inventory and further once off cash
outflows, including R84 million to settle the remaining balance due on the
Amabubesi shares and R40 million further funding injected into the in-house
book of the Group`s financial division, resulted in the net overdraft
(after offsetting cash balances) rising to R356 million at the end of the
period, which was still comfortably within our general banking facilities.
Debtors` days were slightly up year-on-year at 55.3 days (vs 53.3 days last
year) but this was offset by an increase in creditors` days from 54.0 to
59.8. The Group`s debt/equity ratio continued its improvement to 8.37% from
10.62% at the beginning of the period and 13.32% at the end of the
corresponding period last year as a consequence of continued repayment of
the Axiz acquisition funding as per plan.
CORPORATE ACTIVITY
Pinnacle acquired an additional 49% of the issued share capital of Explix
Business Solutions (Pty) Limited ("Explix") for R3.5 million (the company
in which the Group operates its Sharp distributorship) to give it a 100%
holding in that company with effect from 26 October 2011. As part of the
deal the Group invested an additional R4.8 million (exclusive of VAT) in
terms of a related and interdependent enterprise development agreement with
a black-owned, controlled and managed office automation and
telecommunications company that has substantially the same ownership as the
one of the sellers of the Explix shares. The Sharp distributorship was
later moved into the Pinnacle Africa division where it will have the
benefit of that division`s sales and administration infrastructure.
ACCOUNTING POLICIES
In terms of the Listings Requirements of the JSE Limited, the interim
results comply with the framework concepts and the measurement and
recognition requirements of International Financial Reporting Standards and
the AC 500 standards, as issued by the Accounting Standards Board, and have
been prepared in accordance with IAS 34: Interim Financial Reporting, the
Listings Requirements of the JSE Limited and the South African Companies
Act (Act 71 of 2008). The accounting policies used in the preparation of
these interim financial statements are consistent with those employed in
the preparation of the audited financial results for the year ended 30 June
2011.
The Group changed its accounting policies after the last interim report in
respect of certain expense items which are now partially included in the
cost of sales line instead of all being shown in the operating expense
line. In addition the gross profit earned on discounting of financial
leases is now shown as a single line item under operating expenses rather
than the full amount discounted being included in turnover and the full
cost of the leases discounted being under cost of sales. These new policies
were applied in the audited annual financial statements for the year ended
30 June 2011, and the prior period interim results to 31 December 2010 have
been restated in this report for these changes to ensure consistency and
comparability. While this reduced turnover and cost of sales, and increased
gross profit and operating expenses in the restated results for the prior
period to 30 June 2010, there was no impact on that period`s EBITDA,
operating profit or net income before and after tax.
The business combination in respect of the acquisition of Axiz Technology
(Pty) Limited ("Axiz") and its subsidiaries in the prior period was
provisionally accounted for in the last
interim report, as was noted in that report. The accounting for this was
finalised subsequent to the publication of that interim report and this
report contains restated cash flow figures for the prior six-month period
as follows:
(a) The recognition of the external funding of the acquisition
(R73.892 million) and the funding obtained from the issue of
treasury shares (R12.505 million) under the heading "Cash
flow from financing activities";
(b) The addition of the items in (a) above in the line
"Acquisition of subsidiaries" to reflect the full price for
the acquisition rather than only the actual cash portion
paid; and
(c) The exclusion of the net overdraft acquired as part of the
Axiz acquisition from the line "Acquisition of subsidiaries"
in order to disclose this item separately (R121.343
million).
CHANGES TO THE BOARD OF DIRECTORS
Mr Peter Moyo resigned as Amabubesi`s representative non-executive director
on the Board of Pinnacle during February 2012 pursuant to the divestiture
by Amabubesi of all of its interests in the Group. The Board extends its
gratitude to Mr Moyo for his six years of service to the Group. The Board
is in the process of selecting a replacement independent non-executive
director and will communicate the appointment to shareholders as soon as
this process is finalised.
SUBSEQUENT EVENTS
No events material to the understanding of the report, other than those
discussed above, had 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.
PROSPECTS
Diversification of the Group`s revenue streams into additional vertical and
horizontal markets continues to bear fruit, resulting in growth of turnover
and margin. Increased activities in the public sector combined with large
ICT tenders being issued bodes well for the year ahead.
The integration of Axiz and Workgroup to create the new unit AxizWorkgroup
will be completed by the end of our current financial year, and this should
continue to contribute positively to the turnover and profit growth of the
Group. It is anticipated that software sales in AxizWorkgroup will return
to normality in the coming months due to nine additional software agencies
that were added to its basket of offerings.
Pinnacle Africa continues its growth plan in Africa, with Botswana showing
100% growth year-on-year, with plans to duplicate the same efforts in
Namibia. Projects to open offices in two other African countries are almost
complete, which will allow the Group to participate in the exciting growth
potential on the African continent.
While still relatively small, the continued growth and excitement around
the Group`s project orientated business will aid to the future growth and
profitability of the Group. Financial services continue to aid the rest of
the Group`s sales efforts and will show continued future growth.
The Group intends to remain acquisitive and plans to keep on diversifying
the markets it operates in through well planned acquisitions.
General forecasts in this report have not been reviewed nor audited by the
Group`s auditors.
For and on behalf of the Board
D Mashile-Nkosi AJ Fourie
Chairman Chief Executive Officer
Midrand
14 March 2012
Pinnacle Technology Holdings Limited
Directors: D Mashile-Nkosi* (Chairperson), AJ Fourie (Chief Executive
Officer), NN Mthombeni*, FC Smyth (Chief Financial Officer), TAM Tshivhase,
A Tugendhaft*
* (Non-executive)
(Independent)
Preparer of results: FC Smyth
Company Secretary: PJD Engelbrecht
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 South Africa Inc, Registered Auditors, 13 Wellington Road,
Parktown, 2193
Sponsor: Deloitte & Touche Sponsor Services (Pty) Limited
Date: 14/03/2012 12:49:01 Supplied by www.sharenet.co.za
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