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Audited financial results for the year ended 31 August 2012
ConvergeNet Holdings Limited and its subsidiaries
(Registration number 1998/015580/06)
JSE code: CVN ISIN: ZA000102067
(“ConvergeNet” or “the Group” or “the Company”)
Audited financial results for the year ended 31 August 2012
Summarised consolidated statement of comprehensive income
Audited Audited
year ended year ended
R’000 31 Aug 2012 31 Aug 2011
Revenue 1 017 357 1 029 363
Cost of sales (758 192) (782 987)
Gross profit 259 165 246 376
Other income 20 296 1 749
Operating expenses (286 602) (220 805)
Operating (loss)/profit (7 141) 27 320
Investment income 2 252 4 293
Share of profit of associates 3 392 9 360
Fair value adjustments (2 808) -
Impairment of goodwill and other financial assets (30 151) (77)
Finance costs (3 378) (2 284)
(Loss)/profit before taxation (37 834) 8 612
Taxation (8 505) (7 720)
(Loss)/profit for the period (46 339) 30 892
Attributable to:
Equity holders of the parent (43 740) 23 557
Non-controlling interests (2 599) 7 335
Other comprehensive loss (391) -
Total comprehensive (loss)/profit for the year (46 730) 30 892
Attributable to:
Equity holders of the parent (43 940) 23 557
Non-controlling interests (2 790) 7 335
(Loss)/earnings per share
Basic (loss)/earnings per ordinary share (cents) (4.92) 2.66
Diluted basic (loss)/earnings per ordinary share
(cents) (4.90) 2.65
Weighted average number of shares 888 730 243 885 225 634
Diluted weighted average number of shares 893 143 576 889 353 185
Total number of shares in issue 921 285 941 915 115 941
Headline (loss)/earnings per share (cents) (5.01) 2.70
Diluted (loss)/headline earnings per share (cents) (4.98) 2.68
Reconciliation between basic and headline (losses)/earnings
Basic (loss)/earnings attributable to
equity holders of parent (43 740) 23 557
Loss on disposal of property, plant
and equipment 176 528
Profit on disposal of associates (16 363) -
(Profit)/Loss on disposal of subsidiaries (2 126) 74
Loss on sale of other financial asset 1 891 -
Impairment of goodwill 13 617 77
Tax effect of adjustments 2 026 -
Portion of adjustments attributable to
non-controlling interests - (363)
Headline (loss)/earnings (44 519) 23 873
Net asset value per share (cents) 46.3 52.7
Net tangible asset value per share (cents) 26.9 30.9
Summarised consolidated statement of financial position
Audited Audited
as at as at
R’000 31 Aug 2012 31 Aug 2011
ASSETS
Non-current assets
Property, plant and equipment 54 455 35 424
Goodwill 171 199 184 816
Intangible assets 7 926 14 467
Investments in associates 6 001 36 155
Other financial assets 500 42 385
Deferred taxation 24 802 26 002
264 883 339 249
Current assets
Inventories 96 240 85 981
Loans to group companies 2 273 332
Other financial assets 7 336 6 168
Current tax receivable 1 394 3 410
Trade and other receivables 262 281 252 566
Cash and cash equivalents 66 998 66 961
436 522 415 418
Non-current assets held for sale 43 499 -
480 021 415 418
TOTAL ASSETS 744 904 754 667
EQUITY AND LIABILITIES
Total equity
Shareholders' equity 426 649 482 238
Non-controlling interest 61 364 64 156
488 013 546 394
Liabilities
Non-current liabilities
Other financial liabilities 16 730 21 124
Finance lease obligation 6 975 1 039
Operating lease liability 1 806 1 738
Deferred taxation 5 309 6 165
30 820 30 066
Current liabilities
Other financial liabilities 9 638 1 652
Current tax payable 6 119 4 794
Finance lease obligation 6 968 841
Provisions 3 101 976
Trade and other payables 190 598 169 504
Bank overdraft 502 440
216 926 178 207
Non-current liabilities held for sale 9 145 -
226 071 178 207
Total liabilities 256 891 208 273
TOTAL EQUITY AND LIABILITIES 744 904 754 667
Summarised consolidated statement of cash flows
Audited Audited
year ended year ended
R’000 31 Aug 2012 31 Aug 2011
Operating activities
Cash (used in)/from operations (602) 25277
Investment income 2 252 3148
Finance costs (3 378) (2186)
Tax paid (4 820) (13704)
Net cash (used in)/from operating activities (6 548) 12535
Net cash used in investing activities (9 514) (1009)
Net cash from/(used in) financing activities 16 428 (7694)
Net increase in cash and cash equivalents 366 3832
Cash at the beginning of the year 66 521 62689
Exchange losses (391) -
Total cash at end of the year 66 496 66 521
Summarised consolidated statement of changes in equity
Foreign
Share Share currency
capital based trans- Re-
and Treasury payment lation valuation
R’000 premium shares reserve reserve reserve
Balance at 01 September
2010 435 532 (36 884) 19 603 - 137
Total comprehensive income
for the year - - - - -
Equity settled share-
based payments - - 6 445 - -
Shares vested in terms of
forfeitable share plan - 16 128 (16 128) - -
Shares forfeited in terms of
forfeitable share plan - - (2 540) - -
Transactions with non-controlling
shareholders - - - - -
Own shares acquired by subsidiaries,
held as treasury shares - (500) - - -
Balance at 31 August 2011 435 532 (21 256) 7 380 - 137
Total comprehensive loss for
the year - - - (200) -
Equity settled share based
payments - - 2 180 - -
Shares vested in terms of
forfeitable share plan - 8 260 (8 260) - -
Issue of treasury shares in terms
of forfeitable share plan 1 419 - - - -
Shares issued in terms of
forfeitable share plan
not yet vested - (1 350) - - -
Shares forfeited in terms of
forfeitable share plan - (144) - - -
Dividends paid - - - - -
Transactions with non-
controlling shareholders - - - - -
Balance at 31 August 2012 436 951 (14 490) 1 300 (200) 137
Summarised consolidated statement of changes in equity (continued)
Total attri-
Transactions butable
with non- to equity Non-
controlling holders con-
Retained share- of the trolling Total
earnings holders parent interests equity
R'000 R’000 R'000 R'000 R'000
Balance at 01 September
2010 96 686 (59 001) 456 073 56 992 513 065
Total comprehensive income
for the year 23 557 - 23 557 7 335 30 892
Equity settled share-
based payments - - 6 445 - 6 445
Shares vested in terms of
forfeitable share plan - - - - -
Shares forfeited in terms of
forfeitable share plan - - (2 540) - (2 540)
Transactions with non-
controlling shareholders - (797) (797) (171) (968)
Own shares acquired by
subsidiaries, held as
treasury shares - - (500) - (500)
Balance at 31 August
2011 120 243 (59 798) 482 238 64 156 546 394
Total comprehensive loss
for the year (43 740) - (43 940) (2 790) (46 730)
Equity settled share-
based payments - - 2 180 - 2 180
Shares vested in terms of
forfeitable share plan - - - - -
Issue of treasury shares in
terms of forfeitable share
plan - - 1 419 - 1 419
Shares issued in terms of
forfeitable share plan
not yet vested - - (1 350) - (1 350)
Shares forfeited in terms
of forfeitable share plan - - (144) - (144)
Dividends paid (13 516) - (13 516) - (13 516)
Transactions with non-
controlling shareholders - (238) (238) (2) (240)
Balance at 31 August
2012 62 987 (60 036) 426 649 61 364 488 013
Summarised segmental analysis
Information regarding the Group's reportable segments is presented below.
IT Telecom
Infrastructure Infrastructure Corporate
Technology Technology Consolidation
Solutions Solutions and Other Total
2012 2011 2012 2011 2012 2011 2012 2011
R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000
Revenue
788 654 827 260 228 703 202 103 - - 1 017 357 1 029 363
(Loss)/profit from operations
(3 212) 30 743 (2 966) 2 629 (3 771) (6 129) (9 949) 27 243
Investment income
1 521 1 842 315 260 416 2 191 2 252 4 293
Share of profits of associates
1 040 1 065 2 352 8 295 - - 3 392 9 360
Impairment of goodwill and other financial assets
(7 866) - - - (22 285) - (30 151) -
Finance costs
(2 052) (987) (1 326) (1 181) - (116) (3 378) (2 284)
(Loss)/profit before tax
(10 569) 32 663 (1 625) 10 003 (25 640) (4 054) (37 834) 38 612
Income tax (expense) benefit
1 103 (8 485) 453 (2 327)(10 061) 3 092 (8 505) (7 720)
(Loss)/profit for the year
(9 466) 24 178 (1 172) 7 676 (35 701) (962) (46 339) 30 892
Other comprehensive loss
(391) - - - - - (391) -
Total comprehensive (loss)/income for the year
(9 857) 24 178 (1 172) 7 676 (35 701) (962) (46 730) 30 892
Commentary
1. Statement of compliance
The summarised consolidated financial information has been prepared in
accordance with IAS 34 – Interim financial reporting and is a summary of the
audited financial statements of the Group for the year ended 31August 2012,
which have been prepared in accordance with International Financial
Reporting Standards (“IFRS”), the AC 500 standards as issued by the
Accounting Practices Board, the Listings Requirements of the JSE Limited,
and the South African Companies Act 71 of 2008.
2. Accounting policies
The audited results for the year ended 31 August 2012 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 standard and interpretations which were effective for the Group from
1 September 2011.
3. Independent audit by the auditors
The consolidated financial statements for the year have been audited by
Advoca Auditing Inc. and their unqualified audit report is available for
inspection at the registered office of the Company.
4. Corporate governance
The directors of ConvergeNet endorse the Code of Corporate Practices and
Conduct as embodied in the King III Report on Corporate Governance 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.
5. Change in Board of Directors
During the year certain shareholders declared themselves to be in concert
which resulted in a change of control and several board changes. Messrs
Lester Peteni, Ben Kekana and Ross Macdonald resigned from the board with
effect from 21 January 2012 and Mr Mpho Scott resigned on 2 April 2012.
Pursuant to Mr Peteni’s resignation, Mr Sandile Swana was appointed as
interim chairman of the board until 20 June 2012. At the general meeting
held on 20 June 2012 Mrs Michelle Krastanov resigned as director and Messrs
Pieter Bouwer and Gordon Edwards were removed as directors with immediate
effect. Mr Charles Pettit joined the board as a non-executive director on 20
June 2012. The role of Mr Sandile Swana, former chairman of the Company,
changed to that of Chief Executive Officer, for a period of 12 months and Mr
Dumisani Tabata, a non-executive director of the Company, was appointed as
Chairman of the board. The CEO’s appointment was subsequently extended with
a five year contract.
6. Operating results
During the year revenue decreased slightly by 1% from R1 029.4 million to
R1 017.4 million, whilst the gross profit margin increased from 23.9% to
25.5% compared to the corresponding period, primarily as a result of a
change in the business mix. Operating expenditure has increased by 29.8% to
R286.6 million compared to R220.8 million for the corresponding period.
Included in operating expenditure is the cost of establishing Simat
Management Company SA (Pty) Ltd (“Simat”), a site maintenance entity focused
on Africa which is more fully described in section 7 below. As a result of
the increase in operating expenses, the Group made an operating loss of R7.1
million compared to an operating profit of R27.3 million for the
corresponding period. The tax charge for the year includes a once-off
derecognising of deferred tax assets relating to STC and provisions against
equity amounting to R4.8 million and R6.6 million respectively.
The Group loss for the year ended 31 August 2012 was R46.3 million (2011:
profit of R30.9 million) and attributable loss was R43.9 million (2011:
profit of R23.6 million), representing basic loss per ordinary share of 4.92
cents (2011: earnings of 2.66 cents) and headline loss per ordinary share of
5.01 cents (2011: earnings of 2.70 cents).
The financial position of the Group remains strong. During the year,
ConvergeNet issued 6 170 000 new shares in terms of its Forfeitable Share
Plan at an issue price of 23 cents per share.
Simat Group (see section 7 below), incorporated in Mauritius, has obtained a
term loan from AfrAsia Bank Limited based in Mauritius of R18.5 million
(US$2.2 million). Proceeds from this loan were used to fund the initial set-
up and related activities in Gabon and Congo Brazzaville.
As a result of the losses made and the maiden dividend paid in December
2011, the net tangible asset value per share decreased by 12.9% to 26.9
cents per share (2011: 30.9 cents per share).
7. Corporate activities
Effective 1 September 2011, ConvergeNet acquired the remaining 10% interest
in Structured Connectivity Solutions (Pty) Ltd (“SCS”) for a purchase
consideration of R0.240 million paid in cash. Following the above,
ConvergeNet now has a 100% interest in SCS. The SCS business has shown a
positive turnaround over the past few months and has a solid pipeline of new
projects.
Effective 1 December 2011, ConvergeNet sold 5% of its 20% shareholding in
FutureCell, an associate company, for an amount of R11.812 million paid in
cash. ConvergeNet lost significant influence and its remaining 15% interest
has been classified as an investment in financial instruments at Fair Value
through profit and loss. Profit on disposal has been calculated in terms of
IAS 28. The remaining 15% shareholding is valued at R38.229 million at 31
August 2012 and shareholders are reminded that the Company has entered into
a put and call option agreement in relation to the shareholding, which
agreement is exercisable over the next three years. Shareholders are also
referred to Subsequent Events in relation to the disposal of the remaining
15% interest in FutureCell. As a result of the proposed disposal the
investment in FutureCell and the relating put and call options were
reclassified as non-current assets and non-current liabilities held for sale
at 31 August 2012.
During the year ConvergeNet established Simat, a site maintenance entity to
service the mobile operators in Africa in partnership with Matla Group (Pty)
Ltd. ConvergeNet has a 51% interest in Simat. Simat has in turn established
wholly-owned entities in Mauritius, Gabon and Congo Brazzaville. Operations
commenced in March 2012 after being awarded a contract by one of the leading
mobile operators in Africa.
8. 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.
A cash dividend of 1.5 cents per share was paid to shareholders on 28
December 2011.
No dividend has been proposed for the year under review.
9. Industry and Group outlook
Following the restructuring of the board, the group has progressed its
strategy for the next five years, which includes a focus on expanding its
activities into more than 12 identified African countries and streamlining
of its operations. We expect our performance to improve in the next year and
beyond and through growing our African footprint, new innovative service
offerings, strong sales force and proven technical abilities. ConvergeNet
will also continue to prudently invest in identified strategic growth areas
such as a NOC, Cloud Computing, Hosted and ICT Managed Services. This
general outlook has not been reviewed nor reported on by the Company’s
auditors.
10. Post balance sheet events
ConvergeNet had entered into a sale agreement with Pepkor Limited on 7
September 2012 for the sale of ConvergeNet’s remaining 15% interest in
FutureCell for R40 million in cash and the cancellation of the put and call
agreement subject to the fulfilment of suspensive conditions.
In addition to the above, ConvergeNet Management Service (Pty) Limited, a
wholly owned-subsidiary had entered into a share purchase agreement with
Titan Share Dealers (Pty) Ltd ("Titan") on 7 September 2012 to repurchase
71 478 594 ConvergeNet ordinary shares, representing 7.759% of the issued
share capital of ConvergeNet, at 29,675 cents per share, amounting to R 21
211 110 from Titan in terms of section 48 of the Companies Act 71 of 2008,
as amended, subject to the fulfilment of suspensive conditions.
A circular providing further information on the FutureCell Transaction and
the Titan Share Purchase Transaction, was posted to shareholders on 17
October 2012.
11. 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
D Tabata S Swana
Chairman Chief Executive Officer
Centurion
23 November 2012
Corporate Information:
Directors: DD Tabata* (Chairman), S Swana(CEO), DF Bisschoff (CFO),
T Modise, H van Dyk, L Mangope*^, C Pettit*
(* Non-Executive, ^ Independent)
Company secretary and registered office: Arcay Client Support (Pty) Ltd,
Arcay House II, Number 3 Anerley Road, Parktown, 2193
Business Address: 272 West Avenue, Lakefield Office Park, Block D,
Centurion, 0157
Postal Address: P.O. Box 10709, Centurion, 0046
Transfer Secretaries: Computershare Investor Services (Pty) Ltd, 70 Marshall
Street, Johannesburg, 2001
Sponsor: Deloitte & Touche Sponsor Services (Pty) Ltd, Deloitte & Touche
Place, The Woodlands, 20 Woodlands Drive, Woodmead, 2196
Responsibility for financial statement preparation: Mr DF Bisschoff CA(SA),
the Chief Financial Officer is responsible for the financial statements and
has supervised the preparation thereof in conjunction with the Group
Financial Manager, Ms M van Heerden CA(SA).
Email: info@convergenet.co.za
Web: www.convergenet.com
Date: 23/11/2012 12:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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