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PINNACLE HOLDINGS LIMITED - Unaudited interim results for the six months ended 31 December 2015

Release Date: 29/02/2016 16:00
Code(s): PNC     PDF:  
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Unaudited interim results for the six months ended 31 December 
2015

PINNACLE HOLDINGS LIMITED
Registration number 1986/000334/06
Share code: PNC 
ISIN: ZAE000184149
(“Pinnacle” or “the Group” or “the Company”)
www.pinnacleholdings.co.za
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 
2015
AT A GLANCE
REVENUE UP 19%
OPERATING PROFIT UP 21%
HEPS UP 17%
DEBT TO EQUITY IMPROVED to 27%
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
                              Half year   Half year   Full year
                                 31 Dec      31 Dec      30 Jun
                                   2015        2014        2015
                              Unaudited   Unaudited     Audited
                                  R’000       R’000       R’000
Revenue                       4 330 869   3 638 049   7 987 636
Cost of sales                (3 773 894) (3 112 831) (6 870 002)
Gross profit                    556 975     525 218   1 117 634
Operating expenses             (313 849)   (317 906)   (653 666)
Selling expenses                (30 383)    (33 011)    (71 705)
Employees expenses             (238 244)   (242 546)   (491 520)
Administration expenses         (50 607)    (48 502)    (97 214)
Gain on discounting of 
 finance lease agreements           692       1 442       2 069
Profit on foreign exchange        4 693       4 711       4 704
EBITDA *                        243 126     207 312     463 968
Depreciation and amortisation   (15 319)    (15 253)    (31 509)
Impairment of goodwill                –      (3 597)     (5 592)
Operating profit before 
  interest                      227 807     188 462     426 867
Net finance costs               (48 187)    (46 362)    (91 445)
Investment income                 6 147       3 602       7 767
Interest paid                   (54 334)    (49 964)    (99 212)
Share of equity accounted 
  associate income               22 039      17 157      37 915
Profit before taxation          201 659     159 257     373 337
Taxation                        (51 155)    (37 238)    (93 233)
Net profit for the period       150 504     122 019     280 104
Owners of the Company           150 383     121 881     279 849
Non-controlling interests           121         138         255
Other comprehensive income
Items that will not be 
  reclassified into profit 
  or loss:                            –      (2 363)     17 181
Loss on property revaluation          –           –      22 542
Tax relating to items that will 
  not be reclassified                 –      (2 363)     (5 361)
Items that can be reclassified 
  into profit or loss:            4 826       2 739       6 936
Exchange differences from 
  translating foreign 
  operations                        248         681         946
Profit on acquisition of 
  non-controlling interest            –           –       1 254
Cash flow hedge                   4 578       2 058       4 736
Total comprehensive income 
  for the period                155 330     122 395     304 221
Attributable to:
Owners of the Company           155 209     122 257     303 966
Non-controlling interests           121         138         477
* Earnings before interest, taxation, depreciation and 
  amortisation.
RECONCILIATION OF HEADLINE EARNINGS
                              Half year   Half year   Full year
                                 31 Dec      31 Dec      30 Jun
                                   2015        2014        2015
                              Unaudited   Unaudited     Audited
                                  R’000       R’000       R’000
Net profit for the period 
  attributable to ordinary 
  shareholders                  150 383     121 881     279 849
Impairment of goodwill                –       3 597       5 592
Profit on sale of property, 
  plant and equipment net 
  of taxation                      (579)       (131)       (270)
Profit on sale of property, 
  plant and equipment              (804)       (182)       (375)
Less: Taxation thereon              225          51         105
Headline earnings               149 804     125 347     285 171
– Total issued less 
    treasury shares             164 240     155 922     155 922
– Weighted average              159 244     155 922     155 922
FINANCIAL REVIEW
                              Half year   Half year   Full year
                                 31 Dec      31 Dec      30 Jun
                                   2015        2014        2015
                              Unaudited   Unaudited     Audited
Performance per share (cents)
Basic and diluted earnings 
  per share                        94.4        78.2       179.5
Headline and diluted headline 
  earnings per share *             94.1        80.4       182.9
Dividends                             –           –           –
Dividend cover                        –           –           –
Returns (%)
Gross profit                       12.9        14.4        14.0
Operating expenses                 (7.2)       (8.7)       (8.2)
EBITDA **                           5.6         5.7         5.8
Operating profit before 
  interest and taxation             5.3         5.2         5.3
Effective tax rate ***             28.5        26.2        27.8
Net profit                          3.5         3.4         3.5
Return on equity                   17.8        18.8        20.2
*   The Company has no dilutionary instruments in issue.
**  Earnings before interest, tax, depreciation and amortisation.
*** Based on profit before tax excluding share of equity
    accounted associate income.
CONDENSED SEGMENTAL ANALYSIS
                              Half year   Half year   Full year
                                 31 Dec      31 Dec      30 Jun
                                   2015        2014        2015
                              Unaudited   Unaudited     Audited
                                  R’000       R’000       R’000
Revenue
ICT Distribution              4 262 307   3 552 729   7 769 806
IT Projects and Services              –      81 849     184 491
Financial Services               71 378      57 344     120 157
Group Central Services                –           –           –
Less: Intra-segmental revenue    (2 816)    (53 873)    (86 818)
                              4 330 869   3 638 049   7 987 636 
Net profit before taxation 
ICT Distribution                147 312     123 999     285 768
IT Projects and Services              –       3 799       9 740
Financial Services               27 576      24 328      47 862
Group Central Services           26 771       7 131      29 967
                                201 659     159 257     373 337
Net profit after taxation 
ICT Distribution                106 051      87 933     203 158
IT Projects and Services              –       2 735       6 115
Financial Services               19 855      17 516      34 461
Group Central Services           24 598      13 835      36 370
                                150 504     122 019     280 104
Net operating assets
ICT Distribution              1 005 570   1 025 150   1 091 575
IT Projects and Services              –      35 092      39 533
Financial Services              131 812      95 013     111 958
Group Central Services          701 482     206 781     302 055
                              1 838 864   1 362 036   1 545 121
CONDENSED ANALYSIS OF GOODWILL
                              Half year   Half year   Full year
                                 31 Dec      31 Dec      30 Jun
                                   2015       2014         2015
                              Unaudited  Unaudited      Audited
                                  R’000      R’000        R’000
Opening balance                 108 166    116 517      116 517
Goodwill re-allocated to 
  assets held-for-sale                –          –       (2 759)
Impairments                           –     (3 597)      (5 592)
Closing balance                 108 166    112 920      108 166
Impairments
E-Secure                              –     (3 597)      (3 597)
DSP                                   –          –       (1 995)
                                      –     (3 597)      (5 592)
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
                              Half year  Half year    Full year
                                31 Dec      31 Dec       30 Jun
                                  2015        2014         2015
                             Unaudited   Unaudited      Audited
                                 R’000       R’000        R’000
ASSETS
Non-current assets           1 033 319     969 472      850 660
Property plant and equipment    62 840     186 902       67 315
Intangible assets 
  and goodwill                 126 056     129 793      129 824
Investment in associate        442 569     295 757      314 678
Long-term loans                      –      29 843            –
Finance lease receivables      369 373     292 143      311 108
Deferred taxation               32 481      35 034       27 735
Current assets               2 680 863   2 334 701    2 716 198
Inventories on hand            942 679     836 118      781 900
Inventories in transit          65 495      75 344      144 455
Assets classified as 
  held-for-sale                      –           –      208 613
Trade and other receivables  1 469 469   1 257 190    1 375 275
Finance lease receivables      169 132     127 515      146 452
Taxation receivable                 43      11 842        2 161
Short-term loans                 2 429           –       21 217
Cash and cash equivalents       31 616      26 692       36 125
Total assets                 3 714 182   3 304 173    3 566 858
EQUITY AND LIABILITIES
Capital and reserves         1 838 864   1 362 036    1 545 121
Share capital and premium      112 528       1 680        1 680
Treasury shares                (72 856)    (41 766)     (72 856)
Non-distributable reserves      61 794       6 907       57 806 
Cash flow hedge reserve         (2 829)    (10 085)      (7 407)
Accumulated profits          1 739 731   1 401 501    1 565 523
Non-controlling interests          496       3 799          375
Non-current liabilities         35 806     481 667       20 831
Interest-bearing liabilities       374     445 987          437
Non interest-bearing 
  liabilities                      437           –            –
Derivative financial liability       –      19 996            –
Deferred taxation               34 995      15 684       20 394
Current liabilities          1 839 512   1 460 470    2 000 906
Trade and other payables     1 302 719     895 164    1 193 012
Interest-bearing 
  liabilities                  315 177      51 419      486 388
Derivative financial 
  liability                     19 914           –       21 958
Short-term loans                28 501     149 999      151 078
Deferred revenue                12 662       9 650        5 261
Taxation payable                13 436       3 870        7 736
Liabilities associated with 
  assets classified as 
  held-for-sale                      –           –       26 083
Bank overdrafts                147 103     350 368      109 390
Total equity and 
  liabilities                3 714 182   3 304 173    3 566 858
Capital management
Net asset value per 
  share (cents)                1 119.3       871.1        990.7
Net tangible asset value 
  per share (cents)            1 042.6       787.9        907.5
Working capital management
Investment in working 
  capital (R'000)            1 162 262   1 263 838    1 103 357
Days inventory outstanding 
  (excluding in transit)          44.5        49.5         31.1
Days sales outstanding            53.2        58.8         50.7
Days purchases outstanding        53.3        46.6         46.9
Liquidity and solvency
Debt to equity (%)               26.71       74.72        49.80
Current ratio (excluding stock 
  in transit)                     1.47        1.63         1.39
Acid test (excluding stock 
  in transit)                     0.94        1.03         0.96
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                             Half year   Half year    Full year
                                31 Dec      31 Dec       30 Jun
                                  2015        2014         2015
                             Unaudited   Unaudited      Audited
                                 R’000       R’000        R’000
EBITDA *                       243 126     207 312      463 968
Changes in working capital     (58 905)   (105 249)      28 280
Non-cash flow items             (1 081)     14 813       16 492
Cash generated by operating 
  activities                   183 140     116 876      508 740
Net finance costs              (48 187)    (46 362)     (91 445)
Finance income received          6 147       3 602        7 767
Finance expenses paid          (54 334)    (49 964)     (99 212)
Taxation paid                  (49 744)    (52 252)     (88 822)
Dividends received from 
  equity accounted investment    8 170           –       12 026
                                93 379      18 262      340 499
Cash flows from investing 
  activities
Property, plant and 
  equipment acquired            (7 334)    (26 621)     (44 871)
Assets classified as 
  held-for-sale acquired          (617)          –            –
Proceeds on disposals of 
  property, plant and 
  equipment                      1 921       4 431        6 787
Proceeds on disposals of 
  assets classified as 
  held-for-sale                226 115           –            –
Acquisition of intangible 
  assets                             –      (1 740)     (10 529)
Net Investment in finance 
  leases receivable            (80 945)    (55 943)     (93 455)
Additional costs incurred on 
  equity accounted investment     (115)          –       (4 645)
                               139 025     (79 873)    (146 713)
Cash flows from financing 
  activities
Interest-bearing liabilities 
  raised                             –         308          444
Interest-bearing liabilities 
  repaid                      (171 274)     (9 349)     (17 995)
Non-interest bearing 
  liabilities raised               437           –            –
Short-term loans repaid       (103 789)     (1 048)       7 578
                              (274 626)    (10 089)      (9 973)
Decrease in net cash, cash 
  equivalents and overdrafts   (42 222)    (71 700)     183 813
Net cash movements related 
  to assets classified as 
  held-for-sale                      –           –       (5 102)
Net overdraft at beginning 
  of period                    (73 265)   (251 976)    (251 976)
Net overdraft at end 
  of period                   (115 487)   (323 676)     (73 265)
* Earnings before interest, taxation, depreciation and 
  amortisation.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
                             Half year   Half year    Full year
                                31 Dec      31 Dec       30 Jun
                                  2015        2014         2015
                             Unaudited   Unaudited      Audited
                                R’000        R’000        R’000
Opening balance             1 545 121    1 234 842    1 234 842 
Shares issued                 110 848            –            –
Profit on disposal of 
  subsidiary                   27 565            –            –
Comprehensive income 
  for the period              150 504      122 019      280 104
Other comprehensive income        248       (1 682)      18 127
Cash flow hedge reserve         4 578        2 058        4 736
Acquisition of non-controlling 
  interest                          –            –       (2 286)
Equity-based compensation 
  reserve                           –        4 799        9 598
Closing balance             1 838 864    1 362 036    1 545 121
Attributable to:
Owners of the Company       1 838 368    1 358 237    1 544 746
Non-controlling interests         496        3 799          375
BASIS OF PREPARATION AND ACCOUNTING POLICIES
The condensed consolidated unaudited interim financial results 
for the six months ended 31 December 2015 have been prepared in 
accordance with the framework concepts, measurement and 
recognition requirements of International Financial Reporting 
Standards (“IFRS”), the SAICA Reporting Guides as issued by the 
Accounting Practices Committee and Financial Reporting 
Pronouncements as issued by the Financial Reporting Standards 
Council, the information as required by IAS 34: Interim Financial 
Reporting, the Listings Requirements of the JSE Limited and the 
requirements of the Companies Act of South Africa (Act 71 of 
2008), as amended. 
The condensed consolidated unaudited interim financial results of 
the Group are prepared on a historical basis except for certain 
financial instruments, which are stated at fair value as 
applicable.
The condensed consolidated unaudited interim financial results 
have been prepared using accounting policies that comply with 
IFRS and includes reasonable judgements and assessments. These 
accounting policies are consistent with those applied in respect 
of the audited consolidated annual financial statements for the 
year ended 30 June 2015. All new interpretations and standards, 
which became effective during the 6-month period under review, 
have been assessed and adopted with no material impact.
Neither the condensed consolidated unaudited interim financial 
results for the six months ended 31 December 2015, nor this set 
of summarised financial information and disclosure, have been 
reviewed or audited by the Group’s auditors, Sizwe Ntsaluba 
Gobodo Inc. The directors take full responsibility for the 
preparation of this summarised report. Any reference to future 
financial performance included in this announcement has not been 
reviewed or reported on by the Group’s auditors.
FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS
Fair value measurements of financial assets and liabilities are 
analysed as follows:
Level 1 – fair value is determined from quoted prices 
(unadjusted) in active markets for identical assets or 
liabilities.
Level 2 – fair value is determined through the use of valuation 
techniques based on observable inputs, either directly or 
indirectly. 
Level 3 – fair value is determined through the unobservable 
inputs for the asset or liability. 
                            Half year    Half year    Full year
                               31 Dec       31 Dec       30 Jun
                                 2015         2014         2015
                            Unaudited    Unaudited      Audited
                    Level       R’000        R’000        R’000
FINANCIAL ASSETS
Trade and other 
  receivables           2   1 457 596    1 210 765    1 334 044
Share purchase 
  scheme loans          2       2 429       29 843       21 217
Finance lease 
  receivables           2     538 505      419 658      457 560
Cash and cash 
  equivalents           1      31 616       26 692       36 125
FINANCIAL LIABILITIES
Interest-bearing 
  liabilities           2     315 551      497 406      486 825
Derivative financial 
  liability             2      19 914       19 996       21 958
Trade and other 
  payables              2   1 281 187      895 164    1 107 795
COMMENTARY
INTRODUCTION 
The Group presents its condensed consolidated unaudited interim 
financial results for the six months ended 31 December 2015. 
FINANCIAL RESULTS 
The Group had a strong first half with revenue growing 19% to 
R4.3 billion with pleasing growth emanating from our 
infrastructural products and new technologies divisions.  
Operating profit margins improved to 5.3% from 5.2% previously, 
and headline earnings improved by 20% to R150 million. Headline 
earnings per share were up 17% to 94.1 cents per share (“cps”) 
(H1 2015 : 80.4 cps).
Working capital management was further improved and reduced by 17 
days to 44 days from the comparative period’s 61 days. Cash flow 
from operations increased to R183 million (H1 2015: R117 
million), and this, together with the sale of properties and sale 
of Infrasol Proprietary Limited (“Infrasol”) and Merqu 
Communications Proprietary Limited (“Merqu”) to Datacentrix 
Holdings Limited (“Datacentrix”), resulted in the Group’s debt to 
equity ratio reducing to 27% from the comparative period of 75%. 
Group profit margin reduced to 12.9% (2014: 14.4%). The reduction 
in gross margin percentages was brought about through the product 
mix as the group continues its progress into large technology 
projects, which typically carry lower margins, and due to the 
disposal of the services business. Infrasol and Merqu were sold 
to Datacentrix with effect July 2015 and the removal of their 
contribution has reduced group margins by 0.5 percentage points. 
However, operating expenses decreased by 1.3% to compensate for 
the drop in gross margins referred to above. 
Pinnacle announced on SENS on 15 October 2015 that it had 
acquired a further 20 000 000 shares in Datacentrix for the issue 
of 7 691 486 Pinnacle shares. This acquisition precipitated a 
mandatory offer to all Datacentrix shareholders and, by the end 
of December 2015, a further 1 611 149 Datacentrix shares were 
acquired for the issue of 619 673 Pinnacle shares, bringing the 
shareholding in Datacentrix to 46%. Thus, to the end of December 
2015, the investment has been accounted for on an equity 
accounted basis. The additional shares, together with the 
improvement in Datacentrix earnings, has increased the 
contribution of the equity accounted income from R17 million for 
the six months to December 2014 to R22 million for the six months 
to December 2015. This contribution has helped to increase 
headline earnings by 20% to R150 million whilst headline earnings 
per share increased to 94.1 cps (2014: 80.4 cps), an increase of 
17.0%, due to the slightly dilutionary nature of the share swap.
DIVISIONAL PERFORMANCE 
The Distribution division increased revenue by 20% and net profit 
after tax by 21%. The division has traded well in a difficult 
market although gross margins have reduced by one percentage 
point, due to  the focus to gain market share in the 
infrastructure and enterprise divisions. Cost management was 
excellent, with increased efficiencies resulting in operating 
expenses, as a percentage of revenue, decreasing by approximately 
one percentage point when measured against the prior period, 
thereby making up for the margin reduction. Markets outside South 
Africa have been a challenge in this period with a decrease of 
revenue into Africa of 24% although the sector still represents a 
significant 12% of Distribution revenue (2014: 16%). 
Centrafin increased its revenue by 24% and achieved net profit 
after tax growth of 13%. Additional planned expenditure was 
incurred to build further capacity into the business to ensure 
future growth. The book continues to grow strongly and is now at 
R564 million from R445 million a year ago. The margins have been 
maintained and customer defaults continue to be well controlled.
FINANCIAL POSITION AND CASH FLOW
Continued focus on the working capital management paid off. 
Inventory days reduced to 45 from 50 days at the end of December 
2014.  
Trade Receivables are by and large well controlled. Daily Sales 
Outstanding (“DSOs”) were at 53 days compared to 59 days at the 
end of December 2014.
Daily Purchases Outstanding (“DPOs”) increased to 53 days (47 
days in December 2014) as a result of improved terms negotiated 
with some of our suppliers and a general focus to improve 
procurement terms. 
The main cash outflows for the six months comprised:
–  An increase in Working Capital of R59 million;
–  Taxation paid of R50 million;
–  Further investment of R81 million into Centrafin’s finance
   book; and
–  The repayment of:
   –  the R130 million preference share funding; 
   –  the Samrand land funding of R32 million; and
   –  the majority of the short-term loan from Investec of R122 
      million.
This was made possible through the generation of cash from 
EBITDA* of R243 million, the sale of the land and properties for 
approximately R147 million and the proceeds on the sale of 
Infrasol of R82.5 million.
Borrowings now comprise the domestic medium-term note (“DMTN”) 
programme of R315 million, R28 million in short-term loans, and 
overdrafts of R147 million. The DMTN bond of R315 million is due 
to be redeemed on 30 April 2016 and this redemption should be 
facilitated through funds raised on the securitisation of the 
Centrafin book. The structure, once finalised, will allow 
Centrafin to continue to grow their lease book with adequate 
funding in place for the foreseeable future.    
*Earnings before interest, tax, depreciation and amortisation.
RELATED PARTY TRANSACTIONS
There have not been any reportable related party transactions in 
the period except for those that are mentioned elsewhere in this 
report.
SUBSEQUENT EVENTS
On 11 January 2016, the Company announced on SENS that it had 
acquired a further 19 791 464 Datacentrix shares resulting in 
Pinnacle’s shareholding in Datacentrix increasing to 108 311 512 
Datacentrix shares, which represents 55.30% of Datacentrix’s 
total voting shares in issue. With effect from January 2016, the 
results of Datacentrix will be consolidated.
On 7 December 2015, Pinnacle announced on SENS its intention to 
acquire 51% of SolarEff (Pty) Ltd (“SolarEff”). All conditions 
precedent were met on 27 January 2016 and the effective date of 
the acquisition was 1 February 2016.  
No other events material to the understanding of the report 
occurred in the period between the period-end date and the 
publication date of this report.
DIVIDENDS
In line with previous years, no interim dividend is proposed for 
the period under review.
PROSPECTS AND STRATEGIC INITIATIVES
As previously announced on SENS on 13 November 2015, Pierre Spies 
was appointed as joint Chief Executive Officer (“CEO”) with 
effect 1 January 2016. Key changes have been made to the 
Distribution management structure and new appointments have been 
made to enhance the leadership capabilities of the team. We are 
confident that this new energy will deliver the expected results 
into the future.
The outlook for the year to 30 June 2016 is positive with 
earnings expected to be above those of June 2015 due to on-going 
improvements in all business segments. The Distribution division 
is well managed and well positioned to take advantage of the 
opportunities in both the local market and those beyond our 
borders. Centrafin will continue to maintain a steady growth with 
the backing of its securitisation structure and funding. 
Datacentrix and SolarEff will comprise our services segment and 
we are excited about their prospects. As part of our ongoing 
strategy to both diversify and balance our overall business, our 
investment into new technologies and value-added services 
businesses will be accelerated. The recent acquisition of 
SolarEff will further expand our footprint in the rapidly growing 
renewable energy market and we will be able to drive many 
synergies across the Group. We will continue to expand this 
segment of our overall business, both organically and 
acquisitively over the coming months and years. 
STATEMENT OF COMPLIANCE
These condensed consolidated unaudited interim financial results 
for the 6 months ended 31 December 2015 have been prepared in 
accordance with the Group’s accounting policies under the 
supervision of the Chief Financial Officer, RD Lyon CA.
For and on behalf of the Board
A Tugendhaft                          AJ Fourie          
Chairman                              Chief Executive Officer 
Midrand
29 February 2016
PINNACLE HOLDINGS LIMITED
Directors:  
A Tugendhaft * (Chairman), AJ Fourie (Joint Chief Executive 
Officer), P Spies (Joint Chief Executive Officer), RD Lyon CA 
(Chief Financial Officer), SH Chaba*^, N Medupe *^, B Sibiya *^, 
E van der Merwe* 
* Non-executive      ^ Independent non-executive
Registered Office: The Summit, 269, 16th Road, Randjespark, 
Midrand, 1685
Preparer of results: RD Lyon CA
Company Secretary: JV Parkin (BCompt(Hons), CTA)
Transfer Secretaries: Computershare Investor Services (Pty) Ltd, 
Ground Floor, 70 Marshall Street, Johannesburg, 2001
Auditors: SizweNtsalubaGobodo Inc., Registered Auditors, Summit 
Place Office Park, Building 4, Garsfontein Road 221, Menlyn, 0081
Sponsor: Deloitte & Touche Sponsor Services (Pty) Ltd, Building 
8, Deloitte Place, The Woodlands, 20 Woodlands Drive, Woodmead, 
2196



Date: 29/02/2016 04:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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