Wrap Text
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').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.