Wrap Text
Unaudited interim results for the six months ended 31 December 2012
PINNACLE TECHNOLOGY HOLDINGS LIMITED
(Registration number 1986/000334/06)
Share code: PNC
ISIN: ZAE000022570
(“Pinnacle” or “the Group” or “the Company”)
UNAUDITED INTERIM RESULTS for the six months ended 31 December
2012
HIGHLIGHTS
R3.1 billion REVENUE up 14.5%
R229 million EBITDA up 16.1%
R149 million NPAT up 14.6%
93.8 cents HEPS up 19.8%
GROUP CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Half year Half year Full year
31 Dec 31 Dec 30 Jun
2012 2011 2012
Unaudited Unaudited Audited
R’000 R’000 R’000
Revenue 3 126 104 2 731 187 5 844 592
Cost of sales (2 638 635) (2 300 686) (4 936 620)
Gross profit 487 469 430 501 907 972
Operating expenses (258 834) (233 566) (488 635)
Selling expenses (21 245) (28 361) (44 590)
Employee expenses (200 394) (177 548) (364 397)
Administration expenses (42 613) (40 732) (84 877)
Gain on discounting of finance
lease agreements 7 1 209 1 535
Profit on foreign exchange 5 411 11 866 3 694
EBITDA * 228 635 196 935 419 337
Depreciation and amortisation (9 167) (7 698) (18 662)
Net (reversal of impairment)/
impairment of intangible assets – (191) 315
Operating profit before
interest 219 468 189 046 400 990
Net finance costs (10 112) (3 872) (20 386)
Investment income 22 454 8 964 22 633
Interest paid (32 566) (12 836) (43 019)
Profit before taxation 209 356 185 174 380 604
Taxation (60 460) (55 213) (98 253)
Net profit for the period 148 896 129 961 282 351
Other comprehensive income
Items that can be
reclassified into
profit or loss:
Exchange differences from
translating foreign
operations 236 500 286
Total comprehensive income
for the period 149 132 130 461 282 637
Attributable to:
Owners of the Company 148 426 130 455 280 514
Non-controlling interests 706 6 2 123
RECONCILIATION OF HEADLINE EARNINGS
Half year Half year Full year
31 Dec 31 Dec 30 Jun
2012 2011 2012
Unaudited Unaudited Audited
R’000 R’000 R’000
Net profit for the period 148 896 129 961 282 351
Less: Attributable to
non-controlling interests (706) (6) (2 123)
Impairment of goodwill – – 69
Reversal of prior impairment
after taxation – – (276)
Reversal of prior impairment – – (384)
Less: Taxation thereon – – 108
Profit on sale of property,
plant and equipment net
of taxation (91) (333) (339)
Headline earnings 148 099 129 622 279 682
Weighted average number of
shares in issue (‘000) 157 890 165 568 159 721
* Earnings before interest, tax, depreciation and amortisation.
FINANCIAL REVIEW
Half year Half year Full year
31 Dec 31 Dec 30 Jun
2012 2011 2012
Unaudited Unaudited Audited
R’000 R’000 R’000
Performance per share (cents)
Earnings (normal and fully
diluted) 93.9 78.5 175.4
Headline earnings (normal
and fully diluted) 93.8 78.3 175.1
Returns (%)
Gross profit 15.6 15.8 15.5
Operating expenses 8.3 8.6 8.4
EBITDA * 7.3 7.2 7.2
Effective tax rate 28.9 29.8 25.8
Net profit 4.8 4.8 4.8
GROUP CONSOLIDATED ABRIDGED STATEMENT OF CASH FLOWS
Half year Half year Full year
31 Dec 31 Dec 30 Jun
2012 2011 2012
Unaudited Unaudited Audited
R’000 R’000 R’000
EBITDA * 228 635 196 935 419 337
Changes in working capital (196 177) (333 461) (226 042)
Other non-fund flow items (801) 524 (745)
Cash generated by
operating activities 31 657 (136 002) 192 550
Net finance costs (10 112) (3 872) (20 386)
Finance income received 22 454 8 964 22 633
Finance expenses paid (32 566) (12 836) (43 019)
Tax paid (53 338) (64 749) (106 565)
(31 793) (204 623) 65 599
Cash flows from investing
activities
Property, plant and equipment
acquired (63 914) (9 610) (27 035)
Proceeds on disposal of
property, plant and
equipment 741 – 6 398
Acquisition of software and
trademarks (1 718) (3 046) (7 134)
Acquisition of subsidiaries (5 013) – (8 100)
Purchase price (25 274) – (8 100)
Less: Due in the future 20 261 – –
Investment in finance
lease book (70 750) (40 149) (96 145)
Acquisition of non-controlling
interests – (3 500) (7 400)
(140 654) (56 305) (139 416)
Cash flows from financing
activities
Net decrease in interest-bearing
liabilities (7 432) (60 595) (65 532)
Repurchase of Amabubesi
shares – (412) (130 596)
Treasury shares issued and sold – – 48 980
Short-term loans raised 99 439 – 115 384
Decrease in trust loans 359 – –
Dividends paid (55 296) (38 081) (39 685)
37 070 (99 088) (71 449)
Decrease in net
cash/overdraft (135 377) (360 016) (145 266)
Net cash/overdraft
acquisitions 998 – 1 334
Opening net cash/(overdraft) (140 247) 3 685 3 685
Closing net (overdraft) (274 626) (356 331) (140 247)
Cash and cash equivalents 31 075 37 948 42 459
Overdrafts (305 701) (394 279) (182 706)
GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 Dec 31 Dec 30 Jun
2012 2011 2012
Unaudited Unaudited Audited
R’000 R’000 R’000
ASSETS
Non-current assets 491 332 266 704 357 144
Property, plant and
equipment 168 292 107 058 112 189
Intangible assets 97 782 63 395 72 060
Long-term loans 27 855 – 28 214
Finance lease receivables 161 815 29 424 108 562
Deferred taxation 35 588 66 827 36 119
Current assets 2 079 843 1 777 969 1 862 614
Inventories on hand 685 103 684 171 644 431
Inventories in transit 65 800 86 696 150 915
Trade and other
receivables 1 243 065 941 697 987 071
Finance lease receivables 53 121 21 363 35 624
Taxation receivable 1 679 6 094 2 114
Cash and cash equivalents 31 075 37 948 42 459
Total assets 2 571 175 2 044 673 2 219 758
EQUITY AND LIABILITIES
Capital and reserves 905 002 717 866 810 813
Share capital and premium 25 948 112 024 25 945
Treasury shares (42 166) (75 297) (42 166)
Non-distributable reserves 31 636 31 782 31 528
Accumulated profits 884 599 645 749 791 190
Non-controlling interests 4 985 3 608 4 316
Non-current liabilities 55 785 59 840 61 436
Interest-bearing liabilities 36 566 48 024 43 911
Deferred taxation 19 219 11 816 17 525
Current liabilities 1 610 388 1 266 967 1 347 509
Trade and other payables 1 055 805 844 784 1 021 133
Interest-bearing
liabilities 14 886 14 331 14 973
Short-term loan 214 823 – 115 384
Deferred revenue 11 423 9 702 10 460
Taxation payable 7 750 3 871 2 853
Bank overdrafts 305 701 394 279 182 706
Total equity and
liabilities 2 571 175 2 044 673 2 219 758
Shares in issue
externally (‘000) 157 898 165 568 157 889
Capital management
Net asset value (cents) 573.2 433.6 513.5
Net tangible asset
value (cents) 511.2 395.3 467.9
Working capital management
Investment in working
capital 926 740 858 078 750 824
Stock days 52.1 61.3 52.8
Debtors’ days 63.0 55.3 52.1
Creditors’ days 63.1 58.8 66.2
OPERATING SEGMENTS
Half year Half year Full year
31 Dec 31 Dec 30 Jun
2012 2011 2012
Unaudited Unaudited Audited
R’000 R’000 R’000
Revenue
ICT Distribution 3 050 236 2 689 454 5 700 098
IT Projects and Services 68 027 46 757 154 067
Financial Services 30 195 32 666 58 280
Less: Interest received and
discounted leases within
Financial Services revenue
above* (14 021) (19 968) (32 760)
Less: Intergroup revenue (8 333) (17 722) (35 093)
3 126 104 2 731 187 5 844 592
Net profit before taxation
ICT Distribution 194 555 171 142 350 609
IT Projects and Services 8 619 7 485 16 284
Financial Services 9 521 7 493 15 123
Group Central Services (3 339) (946) (1 412)
209 356 185 174 380 604
Net operating assets
ICT Distribution 623 138 405 292 525 934
IT Projects and Services 22 451 9 402 16 910
Financial Services 25 351 6 038 17 899
Group Central Services 234 062 297 134 250 070
905 002 717 866 810 813
* Interest earned and profit on discounted leases within
Financial Services segment is treated as revenue within that
segment, but not in the group consolidated statement of
comprehensive income.
The prior year intra-divisional revenue sales were included in
inter-group revenue. It is considered appropriate to reverse
sales between entities within one segment from that segment’s
revenue rather than leaving such revenue in the revenue line and
showing it as intergroup revenue. In the current statements,
intergroup revenue comprises only sales between segments within
the Group. Prior year figures have been restated accordingly.
GROUP CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Half year Half year Full year
31 Dec 31 Dec 30 Jun
2012 2011 2012
Unaudited Unaudited Audited
R’000 R’000 R’000
Opening balance 810 813 629 374 629 374
Shares issued less acquired
and cancelled (33) 16 (86 394)
Comprehensive income for
the period 149 132 130 461 282 637
Treasury shares
issued/(acquired) – (412) 32 719
On acquisition of shareholding – (3 492) (7 838)
Share-based payment reserve 386 – –
Dividends paid (55 296) (38 081) (39 685)
Closing balance 905 002 717 866 810 813
Attributable to:
Owners of the Company 899 594 714 258 806 497
Non-controlling interests 4 985 3 608 4 316
BUSINESS COMBINATIONS
31 Dec 2012 30 June 2012
Devtrade* Merqu** e-Secure*** Total
R’000 R’000 R’000 R’000
Assets
Property, plant
and equipment 273 1 811 – 1 811
Intangible assets – – – –
Deferred taxation – 64 – 64
Inventories 782 387 739 1 126
Trade and other
receivables 3 612 5 971 – 5 971
Cash and cash
equivalents 998 1 730 – 1 730
5 665 9 963 739 10 702
Liabilities
Interest-bearing
liabilities (134) (1 466) – (1 466)
Shareholders’ loans – (2 286) – (2 286)
Deferred taxation – – – –
Trade and other
payables (5 617) (4 525) (119) (4 644)
Taxation payable – (817) – (817)
Overdrafts – (396) – (396)
(5 751) (9 490) (119) (9 609)
Net assets acquired (86) 473 620 1 093
Less: Non-controlling
interests – (232) – (232)
Goodwill on
acquisition 25 360 2 759 4 480 7 239
Purchase amount 25 274 3 000 5 100 8 100
Turnover since
acquisition 11 302 24 997 15 898 40 895
Profit before tax
since acquisition 3 188 1 312 1 341 2 653
Group turnover # 3 133 817 5 890 417
Group profit
before tax # 206 125 384 332
There were no business combinations in the first six months of
the previous financial year.
All receivables and inventories acquired in these business
combinations were assessed at acquisition and written down to
expected net realisable value immediately prior to acquisition so
that the values shown herein are net of any additional write-
downs deemed necessary.
# If Business Combinations had been acquired at the beginning of
the year.
* Devfam Fire Prevention Equipment (Pty) Ltd, trading as
Devtrade.
** Merqu Communications (Pty) Ltd.
*** e-Secure Distribution.
BASIS OF PREPARATION AND ACCOUNTING POLICIES
These unaudited interim financial statements for the six-month
period ended 31 December 2012 have been prepared in accordance
with the framework concepts and measurement and recognition
requirements of International Financial Reporting Standards (and
in particular, the requirements of International Accounting
Standard 34 on Interim Financial Reporting), the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee,
the Listings Requirements of the JSE Limited, and the South
African Companies Act, No 71 of 2008 as amended.
The accounting policies used in the preparation of these
unaudited interim financial statements are consistent with those
applied in the Company’s published audited annual financial
statements for the year ended 30 June 2012, except for those
amendments to standards that came into effect during the six
months under review. These include the amendment to IAS 12 on
Deferred Tax: Recovery of Underlying Assets, and the amendment to
IAS 1 on the presentation of Financial Statements: Presentation
of Items of Other Comprehensive Income, which have been applied
in these financial statements for the first time. Neither of
these amended policies had any material impact on the Company’s
accounting policies, nor on the financial statements contained
herein.
COMMENTARY
OVERVIEW
The Company is pleased to report a growth in HEPS of 19.8% for
the half year. The Board considers this to be a satisfactory
result in a period in which there was minimal growth from
acquisitive activity and in which trading conditions remained
tough due to the economic situation in South Africa and globally.
Growth in profits occurred in all Group operations, which
highlights the resilience of the entire Group.
FINANCIAL RESULTS
Group turnover increased by 14.5% to R3.1 billion, with all
sectors contributing well. Margins were largely the same as last
year in overall terms, with the growth in the higher margin
Projects and Services division in the mix being offset by
significant growth in the lower margin Axiz business and weakness
in retail over the pre-December festive period.
Further synergistic benefits were achieved from the merger of
Axiz and Workgroup, and the incorporation of the Sharp and
Datanet back offices into Pinnacle Africa, which kept overhead
growth to only 10.8%, and reduced the overhead to turnover ratio
from 8.6% in the first six months of last year to 8.3% in the
current period. EBITDA increased accordingly by 16.1% but some of
this increase was lost to the cost of higher borrowings in the
current period arising out of the repurchase of 17.28 million
shares from Amabubesi Technology Holdings (Pty) Ltd (“Amabubesi”)
at a cost of R130 million, as discussed in prior reports.
Although headline earnings only increased by 14.3%, the positive
impact of the repurchase of the Amabubesi shares was that the
weighted average number of shares in issue was reduced by 4.6%
which leveraged the growth in HEPS up to 19.8% versus the
corresponding six months in the previous year. HEPS ended on 93.8
cents per share (six months to Dec 2011 – 78.3 cents, and the
financial year to June 2012 – 175.1 cents).
DIVISIONAL PERFORMANCE
Distribution grew turnover by 13.4%, and profit before tax by
13.7% year-on-year with a number of large deals being concluded
in the last few months of the year. Core ITC spending is holding
up well due to new product releases such as Windows 8, and the
Group’s entry into the mobile computing arena with our offering
of tablets and smart phones. Promising growth was experienced in
value added areas including security, cabling, racking and
automation, which supported margin improvement, but this was
somewhat offset by conditions in the retail sector which were
tough with both margins and volumes under pressure this year
during a disappointing December holiday season. The integration
of Axiz and Workgroup is now largely completed, and the combined
entity is set for promising future growth.
Projects and Services increased turnover by 45.5% and profit
before tax by 15.2%. The difference between this increase and the
29% EBITDA increase was due to depreciation on assets taken on to
the segment’s books and leased out. Continued investment into
this exciting part of the Group continues to show the desired
outcome. Additional long-term contracts with annuity income were
concluded during this period.
Financial Services increased profit before tax by 27.1%.
Centrafin continues to grow its book strongly (now at R215
million from R51 million a year ago and R144 million at the
beginning of the last six months). In addition it has built its
rental asset pool to R18 million (from R5 million at the
beginning of the period). External funding for the book was
increased from R50 million to R115 million during the period, but
Pinnacle still remains the main provider of capital at R118
million. The intention is for the Financial Services book to be
self-funding as far as possible and we are currently
investigating various options in this regard, including corporate
bond issues and securitisation. Despite the increase in market
penetration, Centrafin’s margins remain strong and customer
defaults are at an all-time low.
FINANCIAL POSITION AND CASH FLOW
Investors will recall that the Group made a strategic decision to
commit to a higher investment than usual in inventories in
December 2011 to guard against anticipated shortages of hardware
at the time. This resulted in an increase in stock days to 61.3
days as at the end of December 2011. The Board is happy to report
that the excess stocks have been cleared and stock days at the
end of the current period had been reduced to 52.1 days.
Debtors’ days have increased from 55.3 days at December 2011 to
63.0 days in December 2012, mainly due to the conclusion of a
number of large deals towards the end of the financial period
under review. This resulted in a disproportionately higher
turnover in the final months of the period and a corresponding
temporary increase in the value of trade receivables. The
increase in debtors’ days does not indicate any deterioration in
the aging and collectability of the Group’s trade receivables and
the situation will rectify in the months immediately following
the period-end.
There was a similar impact in creditors’ days from 58.8 days to
63.1 days arising out of the same large deals.
The main cash outflows amounted to R267 million, comprising:
– Net interest paid of R10 million,
– Taxation paid of R53 million,
– The annual dividend to shareholders of R55 million,
– An investment in land of R41 million, which will be developed
into our new head office over the next two years,
– Other operational capital expenditure of R11 million,
– Further funding of R84 million supplied to Centrafin by the
Group and its bankers as it continues to build its financial
lease book (R71 million) and its leased asset base (R13
million),
– Initial payments on acquisitions (R5 million), and
– Further repayments on the Axiz acquisition long-term loan (R8
million).
This was funded by operational cash flow of R32 million, funding
advanced by Investec to Centrafin of R65 million for its finance
book growth, and increases in short-term bank loans and
overdrafts of R170 million. Borrowings now comprise R115 million
in short-term loans raised for Centrafin’s finance lease book and
rental asset pool (which now total R233 million), a short-term
loan of R90 million pending the Nedbank Preference Share issue,
(which is expected take place shortly, thus converting this loan
to long-term funding), and overdrafts of R306 million against
general banking facilities of R575 million. The Board is
satisfied that the Company remains well funded for the next 12
months, particularly as the Company expects to reduce overdrafts
as usual during the first quarter as we
collect the large deals closed near the period-end and as a
consequence of our usual peak sales period in the first calendar
quarter of 2013.
CORPORATE ACTIVITY
Pinnacle acquired 100% of the issued share capital of Devfam Fire
Prevention Equipment (Pty) Ltd (trading as Devtrade) at a price
that will vary between R5 million and R25.3 million depending on
the earnings achieved in the two years after acquisition. A
payment of R5 million was paid on acquisition and the balance of
the purchase price will be paid in two equal annual tranches.
Devtrade is a security business that distributes high-end
electronic security products including fire detection and
suppression equipment, public address, CCTV and access control
infrastructure. It is one of the two appointed Bosch distributors
in the country. The acquisition of Devtrade gives critical mass
and impetus to our strategic decision to enter the security
market.
CHANGES TO THE BOARD OF DIRECTORS
Chris Smyth stepped down from the Board on 1 January 2013 to head
up the newly created corporate finance function which has the
specific objective of generating acquisitive growth. He has also
taken up the post of Company Secretary which required him to
resigned as a director so that he would be independent of the
Board.
Richard D Lyon replaced Mr Smyth as Chief Financial Officer and
was appointed to the Board in Mr Smyth’s stead.
SUBSEQUENT EVENTS
Pinnacle acquired a 90% share in JAG Engineering (SA) (Pty) Ltd
(“JAG”) during December 2012 which became effective on 1 January
2013. JAG designs and manufactures server racking which will
reduce the reliance on imports and uncertain local supply that
Datanet currently faces with this product range. Details of this
business combination will be disclosed in the Company’s
integrated report for the financial year ending 30 June 2013.
No other events material to the understanding of the report
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
Although trading conditions are likely to remain tough, we are
reasonably confident that the growth momentum seen in the first
half of this year will continue in our existing businesses for
the remainder of the financial year. Some of the investments in
the value added segments are showing positive signs, which should
contribute towards overall Group growth.
The creation of a full time executive post in the corporate
finance area of the business illustrates our strategic commitment
to growth by acquisition. Acquisitive activity will be targeted
at new but allied product ranges and markets that own a higher
proportion of the supply chain and therefore generate higher
margins. We will also look for new geographies that fit our
experience and provide sufficient potential. Acquisitions will
only be made on an income accretionary basis to reduce the
probability of any short-term penalty to the Company’s share
price.
Investors are advised the Company’s auditors have not reviewed
nor reported on any forward-looking statements in this
announcement.
For and on behalf of the Board
D Mashile-Nkosi AJ Fourie
Chairman Chief Executive Officer
Midrand
6 March 2013
PINNACLE TECHNOLOGY HOLDINGS LIMITED
Directors: D Mashile-Nkosi** (Chairperson), A Tugendhaft* (Deputy
Chairperson), AJ Fourie (Chief Executive), SH Chaba**, RD Lyon
(Chief Financial Officer), TAM Tshivhase, E van der Merwe**
* (Non-executive) ** (Independent non-executive)
Preparer of results: RD Lyon CA
Company Secretary: FC Smyth CA(SA)
Registered Office: The Summit, 269, 16th Road, Randjespark,
Midrand, 1685
Transfer Secretaries: Computershare Investor Services (Pty) Ltd,
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) Ltd
www.pinnacleholdings.co.za
Date: 06/03/2013 05:15:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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