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PINNACLE TECHNOLOGY HOLDINGS LTD - Unaudited interim results for the six months ended 31 December 2012

Release Date: 06/03/2013 17:15
Code(s): PNC     PDF:  
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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

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