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CONVERGENET HOLDINGS LIMITED - Unaudited Interim Results for the six months ended 28 February 2013

Release Date: 26/04/2013 14:00
Code(s): CVN     PDF:  
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Unaudited Interim Results 

for the six months ended 28 February 2013

ConvergeNet Holdings Limited and its subsidiaries 
(Registration number 1998/015580/06) 

JSE code: CVN ISIN: ZA000102067

(ConvergeNet or the Group or the Company)


UNAUDITED INTERIM RESULTS 

for the six months ended 28 February 2013

Revenue up 16% to R483.3m

Loss for the period up 109% to R23.2m

Headline loss per share down 28% to 1.70 cents per share

Loss per share up 185% to 1.97 cents per share

Net Asset value per share down 16% to 42.2 cents per share

ConvergeNet Holdings Limited and its subsidiaries 
(Registration number 1998/015580/06) 

JSE code: CVN ISIN: ZA000102067

(ConvergeNet or the Group or the Company)


CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED 28 FERUARY 2013
R000
                           Unaudited 6 months ended 28 Feb 2013        Restated  6 months ended  29 Feb 2012    Audited year ended 31 Aug 2012 
Revenue                			      483 344              		416 522      		 		1 017 357 
Cost of sales            		     (354 074)    		       (310 312)   		 		 (758 192)
Gross profit           			      129 270 	 			106 210 	 			  259 165 
Other income 	 			        2 492 	  			 19 706	 				   20 296 
Operating expenses 	  		     (160 403)	 		       (134 255)	 			 (286 602)
Operating loss 	 			      (28 641)	 			 (8 339)	 			   (7 141)
Finance income 	 			        2 277 	 			  1 321 	 			    2 252 
Share of (loss)/profit of associates 	          (45)	 			  2 982 				    3 392 
Fair value adjustments 			        5 646 	 			 (5 140)	 			   (2 808)
Impairment of goodwill and other 
	financial assets  		       (2 985)				      - 	 			  (30 151)
Finance costs 	 			       (2 853)	 			   (899)	 			   (3 378)
Loss before taxation 	 		      (26 601)	 		        (10 075)	 			  (37 834)
Taxation 	 			        3 358 	 			 (1 064)	 			   (8 505)	
Loss for the period  	 		      (23 243)	 			(11 139)	 			  (46 339)
Other comprehensive loss: 			
Translation of foreign currency reserve        (1 146)	 			      - 	 			     (391)
Other comprehensive loss 	 	      (24 389)	 			(11 139)	 			     (391)
Total comprehensive loss for the period	      (24 389)	 			(11 139)	 			  (46 730)
Loss attributable to: 		
Equity holders of the parent 		      (16 640)	  			 (6 141)	 			  (43 740)
Non-controlling interests 	 	       (6 603)	 			 (4 998)	 			   (2 599)
                                              (23 243)	 			(11 139)	 			  (46 339)

Total comprehensive loss for the period
 attributable to: 		 
Equity holders of the parent 		      (17 224)	 			 (6 141)	 		          (43 940)
Non-controlling interests 	 	       (7 165)	 			 (4 998)	 			   (2 790)
                                              (24 389)	 			(11 139)	 			  (46 730)
		
Loss per ordinary share (cents) 	        (1.97) 	 			  (0.69)	 			    (4.92)
Diluted basic loss per ordinary share
 (cents) 				        (1.97)	                          (0.69)	                            (4.90)

Weighted average number of shares 	  842 829 240 	 		    890 644 784 	 		      888 730 243 
Fully diluted weighted average number
 of shares  				  844 785 906 	 		    896 148 185 	 		      893 143 576 
Total number of shares in issue 	  921 285 941 	 		    921 285 941 	 		      921 285 941 
 
Headline loss per share (cents)	 	        (1.70) 	 			  (2.36)	 			    (5.01)
Diluted headline loss per share (cents)         (1.60) 	 			  (2.35)	 			    (4.98)

Reconciliation between basic and 
	headline loss 
Basic loss attributable to equity holders
 of parent 				      (16 640)	 			 (6 141)	  			  (43 740)
(Profit)/loss on disposal of assets 	          (40)	 			     86 	 			      176 
(Profit)/loss on disposal of associates 	    - 	 			(16 363)	 			  (16 363)
(Profit)/loss on disposal of subsidiaries      (2 097)	 			      - 	 			   (2 126)
Loss/(profit) on sale of other financial asset  4 959 	 			      -	  				    1 891 
Impairment of goodwill 	                            - 	 			      - 				   13 617 
Tax effect on adjustments 	                  (575)	 			   1 374 	  			    2 026 
Portion of adjustments attributable to 
  non-controlling interests 	 		    79 	 			       - 	 				- 
Headline loss 					(14 314)	 		 (21 044)	 			  (44 519)
Net asset value per share (cents) 		   42.2	 			    50.4				     46.3
Net tangible asset value per share (cents) 	   23.0				    29.1	 			     26.9



CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 28 FEBRUARY 2013

R000
								Unaudited as at 28 Feb 2013	Restated as at 29 Feb 2012                  Audited as a 31 Aug 2012

ASSETS 
Non-Current Assets 
Property, plant and equipment      						 54 378 			 46 317                   54 455
Goodwill                                             			        171 199                         184 816                  171 199
Intangible assets                        					  5 442                      	 10 884                    7 926 
Investments in associates                  					  5 956             		  5 590                    6 001 
Other financial assets  							    500  			 58 610 	             500
Deferred taxation   								 36 660                          29 296                   24 802 
 									        274 135  			335 513  		 264 883 

CURRENT ASSETS 
Inventories  									 81 223  			 94 824  		  96 240 
Loans to related parties  							    673  			    332  		   2 273 
Other financial assets  							 17 889  			  8 263 		   7 336 
Current tax receivable  							    709  			  1 187 		   1 394 
Trade and other receivables  							270 437  			275 545 	         262 281
Cash and cash equivalents  							 31 663  			 36 758 		  66 998 
 										402 594  			416 909 		 436 522 

Non-current assets held for sale 						       			        		  43 499 
 										402 594				416 909 	         480 021 

TOTAL ASSETS 									676 729  			752 422 	         744 904

EQUITY AND LIABILITIES
TOTAL EQUITY    
Shareholders equity  								388 364 			464 141 	         426 649 
Non-controlling interest 							 53 096 			 59 155 		  61 364 
										441 460 			523 295  	         488 013 

LIABILITIES 
Non-Current liabilities 
Other financial liabilities  							 11 299  			 20 878  	          16 730 
Finance lease obligation  							  8 099  			 10 617  		   6 975 
Operating lease liability  						          1 529  			  1 734  	           1 806 
Deferred taxation  								  6 891  			  4 773  		   5 309 
										 27 818  			 38 002  		  30 820 

CURRENT LIABILITIES 
Other financial liabilities 						         21 111  			  1 639  		   9 638 
Current tax payable  							         12 252  			  9 666  	 	   6 119 
Finance lease obligation  						          7 911 	 		    776 		   6 968 
Provisions  								          2 611  			 10 219  		   3 101 
Trade and other payables  						        162 583  			157 381  	         190 598 
Bank overdraft  								    983  			 11 444  		     502 
        								        207 451  			191 125 	         216 926 
Non-current liabilities held for sale  						       			        		   9 145 
        								        207 451 			191 125 	         226 071 
Total liabilities  							        235 269  			229 127  	         256 891 
TOTAL EQUITY AND LIABILITIES  						        676 729  			752 422  	         744 904 




CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 28 FEBRUARY 2013 

 R000

								Unaudited as at 28 Feb 2013		Restated as at 29 Feb 2012		Audited as at 31 Aug 2012
Balance at the beginning of the year					       488 013 				546 394  				546 394 
Total comprehensive income for the period 				       (24 389)  			(11 139) 				(46 730)
Equity settled share-based payments						   397				  1 796  				  2 180 
Dividends paid 									       			(13 516)  				(13 516)
Issue of treasury shares in terms of 
forfeitable share plan  							       			        				  1 419 
 Shares forfeited in terms of forfeitable 
share plan not yet vested 							       			       				 (1 350)
 Shares forfeited in terms of forfeitable 
share plan  									      				        				   (144)
Transactions with non-controlling 
shareholders									(2 146) 			   (240)				   (240)
Own shares acquired by subsidiaries, 
held as treasury shares 						       (20 415)				        				       
Balance at the end of the period 					       441 460 				523 295  				488 013 


CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS 
FOR THE SIX MONTHS ENDED 28 FEBRUARY 2013

 R000

								Unaudited as at 28 Feb 2013    		Restated as at 29 Feb 2012		Audited as at 31 Aug 2012
Operating activities 
Cash utilised in operations 						      (37 850) 				  (49 636) 				   (602)
Finance income  								2 277  				    1 321  				  2 252 
Finance costs  								       (2 853) 				     (899) 				 (3 378)
Tax paid  								       (1 153) 				    1 345  				 (4 820)
Net cash utilised in operating activities 				      (39 579) 				  (47 869) 				 (6 548)
Net cash generated from/(utilised in) 
investing activities  								5 392 				   (2 574) 				 (9 514)
Net cash (utilised in)/generated from financing activities 			 (483) 				    9 236  				 16 428 
Net (decrease)/increase in cash and cash equivalents 			      (34 670) 				  (41 207) 				    366
Cash at the beginning of the year  					       66 496  				   66 521  				 66 521 
Foreign currency translation  						       (1 146) 				         				   (391)
Total cash at the end of the period  					       30 680  				   25 314  				 66 496 


 CONDENSED SEGMENTAL INFORMATION FOR THE SIX MONTHS ENDED 28 FEBRUARY 2013 
 
                                        IT Infrastructure    Telecom Infrastructure    Africa Site         Corporate, Consolidation           
  
                                       Technology Solutions     Technology Solutions   Maintenance Solutions      and Other 			Total

  R000                                 Feb 2013     Feb 2012     Feb 2013  Feb 2012    Feb 2013   Feb 2012    Feb 2013   Feb 2012      Feb 2013     Feb 2012 

 
Revenue  				 350 202      323 634  	   123 983    92 888       9 159 	    	      		  	 483 344  	416 522
 
(Loss)/profit from operations  		 (16 026)     (11 459) 	     4 568    (5 024)     (8 712) 	    	(8 471)    (8 144) 	 (28 641) 	 (8 339)
Finance income  			   1 641  	  747  	       326 	  32  	      87	          223 	      542  	   2 277  	  1 321
Share of (loss)/profit of associate 	    (45) 	  629		      2 353  	         	      	        	    	    (45) 	  2 982 
Fair value adjustments  		       	     		   	     	        	        5 645     (5 140)   	  5 645  	 (5 140)
Impairment of goodwill andother 
  financial assets			 (1 385) 	     		            	        	      (1 600) 	 	        (2 985) 	      
Finance costs  				 (2 043) 	 (263) 	      (295) 	(636) 	    (597)	          82 		  	 (2 853) 	   (899)
(Loss)/profit before tax  		(17 858)      (10 346) 	     4 600    (3 275)     (9 222) 	      (4 121)      3 546    	(26 601) 	(10 075)
Income tax benefit/(expense)  		  4 905  	3 475  	    (1 414) 	 517 	    (800) 	         667      (5 056) 	  3 358  	 (1 064)
(Loss)/profit for the period  		(12 953)       (6 871) 	     3 186    (2 758)    (10 022) 	      (3 454)     (1 510) 	(23 243)   	(11 139)
Other comprehensive loss  		       	      		   	     	  (1 146)    	    	      	          	 (1 146) 	      
Total comprehensive (loss)/profit  	
for the period  			(12 953)       (6 871) 	     3 186    (2 758)    (11 168) 	      (3 454)     (1 510) 	(24 389) 	(11 139)

COMMENTARY

1. Statement of compliance

 The unaudited condensed consolidated financial information has been 
prepared by the Financial Director, DF Bisschoff CA(SA), in accordance 
with International Financial Reporting Standards (IFRS), IAS 34  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 71 of 2008, as amended for 
the six months ended 28 February 2013. 

2. Accounting policies

 The unaudited results for the six months ended 28 February 2013 have 
been prepared in accordance with the Groups accounting policies which 
comply with IFRS as issued by the International Accounting Standards 
Board. 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 2012.

3. Comparative figures

 The unaudited results for the six months ended 29 February 2012 has 
been restated as a result of a prior year adjustment made on the future 
utilisation of Deferred Tax on the available Secondary Tax on Companies 
(STC) credits as a result of the new Dividends Tax which became effective 
1 April 2012. This interim period adjustment was announced on SENS on 
2 November 2012.

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 period under review Mr NG Nika was appointed as an 
independent non-executive director with effect from 23 November 2012. 
There have been no other changes to the board. At the AGM held on 
25 January 2013, directors who were eligible for re-election, were 
re-elected.

6. Operating results

 Revenue increased by 16% from R416.5 million to R483.3 million for 
the period under review. The Group has however made an operating loss 
of R28.6 million compared to an operating loss of R8.3 million for the 
corresponding period.

 The IT infrastructure segment has incurred an operating loss of R16.0 million 
(2012: R11.5 million) primarily as a result of a once off cost of R13.9 million. 
The once off cost is resulting from a guarantee provided in favour of a 
subcontractor who subsequently went into business rescue.

 The Telecom infrastructure segment has recovered well in line with 
expectations, generating an operating profit of R4.6 million compared to 
an operating loss of R5.0 million in the corresponding period.

 The African operations incurred an operating loss of R8.7 million (2012: 
Not operational) as a result of higher than anticipated start-up costs.

 The Group loss after taxation for the six months ended 28 February 2013 
was R23.2 million (2012: R11.1 million) and the attributable loss for Equity 
holders of the parent was R16.6 million (2012: R6.1 million), representing a 
basic loss per ordinary share of 1.97 cents (2012: 0.69 cents) and headline 
loss per ordinary share of 1.70 cents (2012: 2.36 cents).

 As a result of the losses incurred, the net tangible asset value per share 
decreased by 21% to 23 cents per share (2012: 29 cents per share).

7. Corporate Activities

 Effective 1 September 2012, Sizwe Africa IT Group (Pty) Ltd sold its 51% 
interest in Interface Networking Technology (Pty) Ltd to the non-controlling 
shareholder. 

 ConvergeNet has sold its remaining 15% interest in Future Cell for R40 million 
in cash on 27 November 2012 and the related put and call option agreement 
was cancelled.

 In addition to the above, ConvergeNet Management Service (Pty) Ltd, a wholly 
owned subsidiary, on 27 November 2012 purchased 71 478 594 ConvergeNet 
ordinary shares from Titan Share Dealers (Pty) Ltd, representing 7.8% of the 
issued share capital of ConvergeNet, at 29.7 cents per share, amounting to 
R21.2 million. 

 Effective 1 January 2013, ConvergeNet sold its 70% shareholding in NetXcom 
ICT Solutions (Pty) Ltd for a minimal amount to the non-controlling shareholder.

 At the AGM held on 25 January 2013 the shareholders approved the conversion 
of the authorised and issued ordinary share capital of the company at par 
value of R0.001 to ordinary shares of no par value as well as the increase of 
the authorised share capital of the company from 1 000 000 000 no par value 
shares to 2 000 000 000 no par value shares.

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.

 No dividend has been proposed for the period under review.

9. Industry and Group outlook

 The Group has progressed its strategy for the next five years and increased 
revenues. The Group is streamlining its operations into key technologies and 
vertical markets. We have adopted a more cautious approach in expanding our 
African operations in order to reduce our risks and ensuring acceptable and 
sustainable returns on our investments. A more aggressive approach is also 
being formulated to enhance our annuity revenue base, as well as a review 
of our sub-contracting and supply chain procedures to reduce our risks and 
increase efficiencies. We are also strengthening our position in the optic fibre 
rollout space to grow sustainable infrastructure business over the next two to 
three years. Eighty per cent of our subsidiaries are showing very promising 
results going into the second half of 2013 while the balance is subject to robust 
management initiatives. ConvergeNet will also continue to prudently invest in 
identified strategic growth areas in the next six months and beyond. 

 Any forward looking statements in this announcement have not been audited or 
reviewed by the Companys auditors.

10. Post balance sheet events

 On 12 March 2013, at a general meeting of ConvergeNet shareholders, the 
acquisition of the remaining 25% non-controlling interest in Sizwe Africa IT 
Group (Pty) Ltd (Sizwe) for an aggregate purchase price of R45.0 million and 
the remaining 26% non-controlling interest in Chrystalpine Investments No 9 
(Pty) Ltd for an aggregate purchase price of R20.0 million was approved.

 The Sizwe acquisition was however conditional on the Takeover Regulation 
Panel (TRP) granting the sellers exemption in respect of their obligation to 
make a mandatory offer to minorities. The TRP made a ruling on 18 March 2013 
that the transaction is exempted from the requirements to make a mandatory 
offer but two shareholders have appealed against the TRP ruling. A hearing 
before the TRP has been scheduled for 30 April 2013.

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

26 April 2013

Corporate Information:

Directors:

 DD Tabata* (Chairman), S Swana (CEO), DF Bisschoff (CFO), T Modise, 

 H van Dyk, L Mangope*^, C Pettit*, NG Nika*^

 (* Non-Executive, ^ Independent)

Company secretary: 

 Juba Statutory Services Proprietary Limited, No 1 Carlsberg, 430 Nieuwenhuyzen 
Street, Erasmuskloof, 0174

Registered office: 

 272 West Avenue, Lakefield Office Park, Block D, Centurion, 0157

Postal Address: 

 P.O. Box 10709, Centurion, 0046

Transfer Secretaries:

 Computershare Investor Services Proprietary Limited, 70 Marshall Street, 
Johannesburg, 2001

Sponsor:

 Deloitte & Touche Sponsor Services Proprietary Limited, Deloitte & Touche 
Place, The Woodlands, 20 Woodlands Drive, Woodmead, 2196

Email:

arlenet@convergenet.co.za

Web:

www.convergenet.com

ConvergeNet Holdings Limited which is a leading supplier of Information 
and Communication Technology products and services, servicing 
both the local and African markets, released its results for the six 
months ended 28 February 2013.



Date: 26/04/2013 02:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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