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TELEMASTERS HOLDINGS LIMITED - Condensed Audited Provisional Consolidated Financial Results for the Year Ended 30 June 2017

Release Date: 02/10/2017 07:05
Code(s): TLM     PDF:  
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Condensed Audited Provisional Consolidated Financial Results for the Year Ended 30 June 2017

TELEMASTERS HOLDINGS LIMITED

(Incorporated in the Republic of South Africa)

Registration number 2006/015734/06

Share code: TLM & ISIN Number: ZAE000093324

(“TeleMasters” or “the Company” or “the Group”)

CONDENSED AUDITED PROVISIONAL CONSOLIDATED FINANCIAL RESULTS FOR THE YEAR
ENDED 30 JUNE 2017 AND DIVIDEND DECLARATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                                                          AUDITED        %               AUDITED
                                                    Year ended 30                  Year ended 30
                                                                       Change
                                                             June                           June
                                                             2017                           2016
                                                                R                              R


 Revenue                                               120 628 317       14          105 426 236
 Cost of sales                                         (80 135 980)      17          (68 306 865)
 Gross profit                                           40 492 337        9           37 119 371


 Other income                                              185 282      (63)              503 496
 Operating expenses                                    (36 488 150)       5           (34 884 564)
 Operating profit                                        4 189 469       53             2 738 303


 Investment revenue                                        247 726      (45)              452 318
 Finance costs                                            (811 378)     115              (377 537)
 Profit before tax                                       3 625 817       28             2 813 084

 Taxation                                               (1 168 424)      46              (799 827)
 Profit for the year                                     2 457 393       22             2 013 257
 Other comprehensive income for the year                         -                              -
 Total comprehensive income for the year                 2 457 393                      2 013 257


 Profit and total comprehensive income
 attributable to the owners of the Group                 2 457 393                      2 013 257


 EARNINGS PER SHARE:



 Basic earnings per share (cents)                             5.85                           4.79
 Dilutive earnings per share (cents)                          5.85                           4.79

 Headline earnings per share (cents)                          5.85                           4.82
 Dilutive headline earnings per share (cents)                 5.85                           4.82
The earnings per share/ dilutive earnings per
share and headline earnings per share were
determined using the following information:

Basic and dilutive earnings - used in the
calculation of basic and dilutive earnings
per share
Earnings attributable to owners of the Group             2 457 393                      2 013 257




RECONCILIATION BETWEEN EARNINGS AND HEADLINE EARNINGS:

Earnings attributable to owners of the
Company                                                  2 457 393                      2 013 257
Adjusted for:
(Gain)/ loss on disposal of property plant and
equipment – net of tax                                           -                         12 187
Headline earnings for the period                         2 457 393                      2 025 444




                                                      30 June 2017                   30 June 2016



Weighted number of ordinary shares in issue             42 000 000                     42 000 000


Dividends declared per share (cents)                          2.00                           3.00

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION




                                                           AUDITED                       AUDITED
                                                     As at 30 June                 As at 30 June
                                                              2017                          2016
                                                                                        Restated
ASSETS                                                           R                             R
Non-current assets
Property, plant & equipment                             20 081 413                    21 449 451
Goodwill                                                 2 686 779                     2 686 779
Intangible assets                                          913 762                       962 532
Deferred tax                                                     -                       845 879
Prepayments                                              6 462 727                             -
                                                        30 144 681                     25 944 641
Current assets
Inventories                                                660 142                        633 165
Trade and other receivables                             14 991 947                     16 402 254
Prepayments                                              4 703 906                      4 810 038
Cash and cash equivalents                                4 269 126                      3 614 713
                                                        25 625 121                     25 460 170
Total assets                                            54 769 802                     51 404 811


EQUITY AND LIABILITIES
Total equity
Issued capital                                              48 059                         48 059
Retained earnings                                       34 649 707                     33 032 314
                                                        34 697 766                     33 080 373
Non-current liabilities
Finance lease liabilities                                2 369 347                      2 651 125
Deferred income                                            462 213                        722 541
Deferred tax                                               199 521                              -
                                                         3 031 081                      3 373 666
Current liabilities
Other financial liabilities                              2 995 385                      2 494 721
Finance lease liabilities                                2 943 066                      2 434 603
Trade and other payables                                10 634 503                      9 689 878
Deferred income                                            260 329                        260 329
Bank overdraft                                              84 648                         71 241
Current tax payable                                        123 024                              -
                                                        17 040 955                     14 950 772
Total liabilities                                       20 072 036                     18 324 438
Total equity and liabilities                            54 769 802                     51 404 811

Number of shares in issue                               42 000 000                     42 000 000
Net asset value per share (cents)                            82.61                          78.76
Net tangible asset value per share (cents)                   74.04                          70.07


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                           AUDITED                       AUDITED
                                                   Year ended 2017               Year ended 2016
                                                                 R                             R
Cash flows from operating activities

Cash generated from operations                           7 653 512                     2 953 991
Finance costs                                            (461 162)                      (377 537)
Net cash from operating activities                       7 192 350                     2 576 454


Cash flows from investing activities


Additions to plant and equipment                       (3 806 001)                   (3 746 505)
Proceeds on disposal of plant and
equipment                                                  78 706                       188 333
Additions to intangible assets                           (461 200)                     (360 000)
Investment revenue received                               247 726                       452 318
Net cash used in investing activities                  (3 940 769)                   (3 465 854)


Cash flows from financing activities


Proceeds from other financial liabilities                 600 000                             -
Repayment of other financial liabilities                        -                      (500 000)
Repayment of finance leases                            (2 373 185)                     (719 187)
Dividends paid                                           (837 390)                   (1 469 091)
Net cash used in financing activities                  (2 610 575)                   (2 688 278)




Total cash movement for the period                        641 006                    (3 577 678)
Cash and cash equivalents at the beginning
of year                                                 3 543 472                     7 121 150
Cash and cash equivalents at the end of
year                                                    4 184 478                     3 543 472

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY




                                                                     Total
                                           Share         Share       share       Retained          Total
                                         capital       premium     capital       Earnings         equity
                                               R             R           R              R              R
 Balance at 01 July 2015                   4 200        43 859      48 059     32 279 057     32 327 116
 Comprehensive income
  - Profit for the period                      -             -           -      2 013 257      2 013 257
 Total comprehensive income                    -             -           -      2 013 257      2 013 257
 Transaction with owners
  - Dividends                                  -             -           -     (1 260 000)    (1 260 000)
 Total transactions with owners                                                (1 260 000)    (1 260 000)
 Balance at 01 July 2016                   4 200        43 859      48 059     33 032 314     33 080 373
 Comprehensive income
  - Profit for the period                      -             -           -      2 457 393      2 457 393
 Total comprehensive income                    -             -           -      2 457 393      2 457 393
 Transaction with owners
  - Dividends                                  -             -           -       (840 000)      (840 000)
 Total transactions with owners                                                  (840 000)      (840 000)
 Balance at 30 June 2017                   4 200        43 859      48 059     34 649 707     34 697 766


SEGMENT REPORT

IFRS8 requires an entity to report financial and descriptive information about its reportable segments,
which are operating segments or aggregations of operating segments that meet specific criteria.
Operating segments are components of an entity about which separate financial information is available
that is evaluated regularly by the chief operating decision maker. The Chief Executive Officer is the
chief operating decision maker of the Group.

The Group does not have different operating segments. The business is conducted in South Africa and
is managed centrally with no branches. The Company is managed as one operating unit.

All revenues from external customers originate in South Africa.

LCR and Digital Direct, our main technologies, are two technologies which are fully integrated to provide
one telecommunications solution to our customers and are not separately managed.

No single customer makes up more than 10% of the Group’s Revenue.
Related Party Relationships

Members of key management                                     BR Topham
                                                              MB Pretorius
                                                              M van der Walt
                                                              T Smith

Non-executive directors                                       J Voigt
                                                              DS Van der Merwe
                                                              MG Erasmus

Entities in which a member of key management and/or non-executive director have a beneficial interest

BR Topham                                                     TAG Business Advisors (Pty)Ltd
                                                              TAG Consulting (Pty)Ltd
                                                              BRAT Trust


MB Pretorius                                                  Snowy Owl Properties 82 (Pty)Ltd
                                                              Maison D' Obsession Trust
                                                              TeleMasters(Pty) Ltd

MG Erasmus                                                    Arbor Capital Company Secretarial (Pty)Ltd
                                                              Arbor Capital Corporate Finance (Pty)Ltd

J Voigt                                                       PerfectWorx Consulting (Pty) Ltd
                                                              Contineo Virtual Communications(Pty)Ltd

                                                                       30 June 2017             30 June 2016
 Related party balances
 Loan accounts - Owing (to) by related parties
 Maison D' Obsession Trust                                               (2 995 379)              (2 494 721)

 Amounts included in Trade receivables regarding related
 parties
 Snowy Owl Properties 82 (Pty) Ltd                                          130 995                  130 995

 Related party transactions

 Interest paid on other financial liabilities
 Maison D' Obsession Trust                                                  350 216                        -

 Cost of Sales from related parties
 PerfectWorx Consulting (Pty) Ltd                                         2 194 875                2 055 878
 Contineo Virtual Communications (Pty) Ltd                                6 534 206                3 662 583
 TeleMasters (Pty) Ltd                                                      210 526                  210 526

 Rent paid to related parties
 Snowy Owl Properties 82 (Pty) Ltd                                        1 378 895                1 378 895

 Consulting fees paid to related parties
 TAG Business Advisors (Pty) Ltd                                                  -                  133 663
 BRAT Trust                                                                  21 272                   33 465
 Arbor Capital Company Secretarial (Pty) Ltd                                120 000                  120 000
 Arbor Capital Corporate Finance (Pty) Ltd                                  120 000                        -
 TAG Consulting (Pty) Ltd                                                   248 553                  317 750

 Sales to related parties

 TeleMasters (Pty) Ltd                                                      385 430                  380 417

 Compensation to Key Management & Executive Directors
 Chief Operating Officer                                                    945 852                  864 000
 Short-term employee benefits – Executive Directors                       1 792 511                1 463 396

1. COMPANY PROFILE

TeleMasters is licensed to provide voice, data and cloud based corporate communications. It supplies
fixed-line, fixed cellular, fixed data and virtual PBX services countrywide.

2. FINANCIAL RESULTS

2.1 Statement of compliance and basis of preparation
The condensed provisional consolidated financial statements for the year ended 30 June 2017 are
prepared in accordance with International Financial Reporting Standards (IFRS) and the SAICA
Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting
Pronouncements as issued by the Financial Reporting Standards Council and to also, as a minimum,
contain the information required by IAS 34 Interim Financial Reporting, as well as the requirements of
the Johannesburg Stock Exchange’s Listings Requirements for provisional reports, and the
requirements of the Companies Act of South Africa.

The accounting policies applied in the preparation of the consolidated financial statements from which
the condensed financial statements were derived, are in terms of International Financial Reporting
Standards and are consistent with those accounting policies applied in the preparation of the previous
consolidated annual financial statements, except for the adoption of the new standards and
interpretations, where relevant.

This condensed consolidated results announcement, itself not audited, is extracted from the audited
consolidated annual financial statements.

The consolidated annual financial statements were audited by Nexia SAB&T, who expressed an
unmodified opinion thereon. The audited consolidated annual financial statements and the auditor’s
report thereon are available for inspection at the Company’s registered office.

The auditor’s report does not necessarily report on all of the information contained in this
announcement. Shareholders are therefore advised that in order to obtain a full understanding of the
nature of the auditor’s engagement they should obtain a copy of the auditor’s report together with the
accompanying financial information from the issuer’s registered office.

The directors take full responsibility for the preparation of the provisional report and that the financial
information has been correctly extracted from the underlying consolidated annual financial statements

These results were prepared under the supervision of Brandon Topham CA (SA).

2.2 Commentary on operating results
In difficult trading conditions, the revenue growth of 14.4% is pleasing. The average price of voice
minutes sold keeps declining and the pressure of a free-market is evident in the widespread lowering
of the retail prices on most telecommunication services. This pressure compresses margins.

The Gross Profit decline was offset by a planned reduction of operating expenses. As a result, the
Operating Profit increased by 53% and the pre-tax profit increased by a pleasing 28%. As a result, the
Comprehensive Income of the Group showed a 22% increase.

Cash generated from operations increased by a healthy 158.5% to R7.6m whilst maintaining capital
expenditure. As an annuity-based business, such investment indicates a healthy future income stream.

The Net Asset Value increased by 4.89% and at 82.61 cents per share, it is substantially higher than
the average level of the share price, albeit in a thinly traded market. Debtor days decreased by 13.4%.

The Board is pleased with the direction of the results in terms of sales, profits and cash flow in spite of
the pressure of gross margins across all products.

In many instances commissions payable on the sale of term revenue contracts (“Term Revenue
Contracts”) are paid upfront and capitalised to Prepaid Commission. The Prepaid Commission account
is amortised to the Statement of Comprehensive Income as Cost of Sales over the term of the Term
Revenue Contracts as the Revenue from these contracts is realised in the Statement of Comprehensive
Income. The prepaid commission balance is expected to grow as the Term Revenue Contracts grow.

The Term Revenue Contracts to which the prepaid commission relates are signed for periods varying
between 12 and 60 months at varying margins, depending on the products and services provided.
Revenue from the Term Revenue Contracts is recognised in the Statement of Comprehensive Income
as it is earned on a monthly basis over the term of the contract. The visible growth in Revenue in the
Statement of Comprehensive Income represents the actual revenue earned for the reporting period
which is only a relatively small portion of the actual increase in future annuity revenue contracted for
during the period. Due to the significant increase in prepayments as at reporting period end, the
prepayments are disclosed separately on the Statement of Financial Position to aid users in their
understanding of the Group.

2.3. Dividends paid and notice of declaration of a dividend
The Board does not primarily link the payment of dividends to the current year’s operating results, but
considers the dividends in relation to the Group’s’ reserves of R34.7 million in 2017 (R33 million in
2016). The Board considers the working capital requirements of the Group for the next 12-month period
when determining a dividend. The Board considers that dividends are an important reason why
shareholders invest in a Company and hence hold the principle of paying quarterly dividends highly.

The following dividends were declared during the year to date:
    -   A cash dividend of 0.5 cent per share which was paid to shareholders recorded in the
        company's share register at the close of business on 28 October 2016;
    -   A cash dividend of 0.5 cent which was paid to shareholders recorded in the company's share
        register at the close of business on 13 January 2017; and
    -   A cash dividend of 0.5 cent which was paid to shareholders recorded in the company's share
        register at the close of business on 21 April 2017;
    -   A dividend of 0,5 cents per share was declared and paid to all shareholders recorded in the
        share register of the Company at the close of business on Friday, 7 July 2017.

The Board remains committed to the policy of quarterly dividends.

During the comparative year ended 30 June 2016, the company declared four dividends totalling 3
cents per share.


Notice is hereby given that a dividend of 1,0 cents per share is declared and will be paid to all
shareholders recorded in the share register of the Company at the close of business on Friday, 20
October 2017. The dividend will be subject to the Dividends Tax that was introduced with effect from 1
April 2012. In accordance with the provisions of the Listings Requirements of the Johannesburg Stock
Exchange, the following additional information is disclosed:

- the dividend has been declared out of retained earnings;
- the local Dividends Tax rate is 20%;
- the gross local dividend is 1.0 cents per share for shareholders exempt from Dividends Tax;
- the net local dividend is 0.8 cents per share for shareholders liable for Dividends Tax;
- the Company has 42 000 000 ordinary shares in issue;
- the Company’s income tax reference number is: 9683978143.


The following dates are applicable to the dividend:

The last day to trade in order to be eligible for the dividend will be Tuesday, 17 October 2017. Shares
will trade ex-dividend from Wednesday, 18 October 2017. The record date will be Friday,20 October
2017 and payment will be made on Monday, 23 October 2017.
Share certificates may not be dematerialised/re-materialised between Wednesday, 18 October 2017
and Friday, 20 October 2017, both days inclusive.

2.4. Acquisition of property plant and equipment
Property, plant and equipment acquired during the year was comprised mostly of investments in IT
equipment and routers and handsets to assist with the expansion of the Digital Direct product.

During the current period the Group has re-assessed the residual values of routers and handsets, due
to the ever changing technological environment in which the Group operates. The financial impact of
the re-assessment of the residual values amounted to additional depreciation charges in the amount of
R2.9 million in the current financial period.

3. SUBSEQUENT EVENTS

The directors are not aware of any matter or circumstance arising since the reporting date which would
have a material effect on the consolidated results or the consolidated financial position of the Group as
reported.

4. LITIGATION

There are currently no legal proceedings of which the Group is aware which may have, or have had in
the 12 months preceding the date of this report, a material effect on the consolidated position of the
Group, other than as disclosed below:

    -   The Group is currently involved in litigation with a previous client pertaining to outstanding
        receivables to the value of R4.1 million, however these receivables are adequately secured
        through cession of listed shares held against the debt owed to the Group in excess of the R4.1
        million outstanding receivables. The previous client has lodged a counter claim against the
        Group for a similar amount as the claim the Group has against them. The matter has been
        referred for arbitration, no further progress has been made due to the technical nature thereof.

    -   The Group is also involved in further litigation with a previous service provider in the amount of
        R1.6 million due mainly to contractual disputes surrounding historic billings, and the validity
        thereof.

The estimated legal fees to continue pursuing these legal matters are approximately R500 000.

5. GOING CONCERN

The Board of directors believes, having regard to the current status and the future strategy of the Group,
the Group has sufficient resources to continue as a going concern.

6. SHARE CAPITAL

No changes to share capital occurred during the past financial year.

7. CORPORATE GOVERNANCE

The Group subscribes to the values of good corporate governance at all levels and is committed to
conducting business with discipline, integrity and social responsibility.

8. FINANCIAL INSTRUMENTS

The carrying amount of all significant financial instruments approximates the fair value.

9. FINANCIAL RISK MANAGEMENT AND FAIR VALUE

There has been no material change in the Group's financial risk management objectives and policies
compared to those disclosed in the consolidated annual financial statements as at and for the year
ended 30 June 2016.

The Group does not currently carry any assets or liabilities at fair value which required any disclosure
on its fair value measurement.

10. FUTURE PROSPECTS

The intense competition in the telecommunication market has led to a number of closures and
consolidations in the industry. The expectation is that retail prices offered by market participants will
dwindle as new value-added offerings are launched into the market.

On this front the Company is prospering as our services are designed and offered with Unique Selling
Propositions as the key marketing factor instead of mere price. The data and broadband services have
taken off very well and forms the backbone of our trademarked ‘Future Proof” service that includes data,
voice and customer equipment as a single point of service.

The Company remains supplier agnostic which means services over multiple fibre and related carrier
types with a variety of suitable equipment can be provided. The roll-out of optic fibre and Wi-Fi services
across business districts is the key to future growth as speedy and reliable connection remain the
drivers for all digital services.

A change in the business model will be rolled out in the coming year that should enhance the reach to
potential customers, ease cash flow pressures and advance new technology over our base of
customers. The acceptance rate of digital data and voice services is accelerating and the Company is
determined to carve out a larger unique niche of satisfied, life-long customers.

11. RECLASSIFICATIONS

The comparative period statement of financial position has been reclassified as follows:

                                         Restated           Previously stated                Difference
 Prepayments                            4 810 038                           -                 4 810 038
 Trade and other                       16 402 255                  21 212 292                (4 810 038)
 receivables

This reclassification was made in order to enhance disclosure of this growing significant category of
asset. This results in the separate disclosure of the prepayments balance from trade receivables and
will aid users in better understanding the operations of the Group.

No changes to the Statement of Comprehensive Income, Retained Earnings or to the Total Cash
Movement for the Period in the Statement of Cash Flow as a result of the above reclassification
occurred.

12. CHANGES TO THE BOARD

Mr Brandon Topham resigned as CFO with effect from 28 February 2017 and Mrs Talana Smith was
appointed as CFO with effect from 1 March 2017. Subsequent to year end, Mrs Smith resigned in order
to pursue an opportunity in the property industry. Mr Topham, who continued to serve on the Board
post his resignation as CFO, has agreed to act in the capacity of CFO until such time as a new
appointment has been made. Mr Topham’s role has accordingly changed from that of non-executive
director to executive director. Shareholders will be advised as soon as a new CFO has been appointed.

For and on behalf of the Board:

MB Pretorius                              BR Topham
Chief Executive Officer                   Acting Chief Financial Officer
29 September 2017

Corporate information
Directors: DS van Der Merwe#, MB Pretorius, BR Topham, J Voigt* MG Erasmus*
(* non-executive # independent)
Registered address: 90 Regency Drive, Route 21 Corporate Office Park, Irene, 0157 Pretoria
(P.O.Box 68255 Highveld Park 0169)
Company secretary: TAG Consulting (Pty) Ltd
Auditors: Nexia SAB&T, 119 Witch-Hazel Avenue, Highveld Technopark, Centurion
Transfer secretaries: Link Market Services Proprietary Limited, 13th Floor, Rennie House,
19 Ameshoff Street, Braamfontein, 2017
Designated Advisor: Arbor Capital Sponsors Proprietary Limited
Website: www.telemasters.co.za

Date: 02/10/2017 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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