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ISA HOLDINGS LIMITED - Provisional Reviewed Condensed Consolidated Annual Financial Results For the Year Ended 28 February 2018

Release Date: 29/05/2018 17:50
Code(s): ISA     PDF:  
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Provisional Reviewed Condensed Consolidated Annual Financial Results For the Year Ended 28 February 2018

ISA Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1998/009608/06)
Share code: ISA
ISIN: ZAE000067344
(“ISA” or “the company” or “the group”)

PROVISIONAL REVIEWED CONDENSED CONSOLIDATED ANNUAL FINANCIAL RESULTS FOR THE
YEAR ENDED 28 FEBRUARY 2018


                                                       28 Feb 18    28 Feb 17
                                                            year         year
                                                           ended        ended
                                                        Reviewed      Audited
                                                           R'000        R'000
CONDENSED CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME

Revenue                                                  112,692      163,412
Turnover                                                 108,305      159,712
Cost of sales                                            (61,204)     (88,977)
Profit before other income and expenses                   47,101       70,735
Other income                                                 238          120
Selling and marketing costs                              (12,508)     (11,813)
Administrative expenses                                  (11,198)     (15,536)
Finance income                                             4,149        3,580
Finance costs                                                  -        (994)
Share of profits of
equity-accounted investment                                  491          269
Profit before taxation                                    28,273       46,361
Taxation                                                  (7,051)     (16,612)
Profit attributable to equity shareholders
  for the period                                          21,222       29,749

Total comprehensive income attributable to
equity shareholders for the period                        21,222       29,749

Earnings per share (cents)                                  13.6         19.1
Diluted earnings per share (cents)                          13.6         19.1

Notes:
-  Revenue decreased by 31%, turnover decreased by 32%, cost of sale
   decreased by 31% and profit before other income and expenses decreased
   by 33%, mainly due to the fact that there were no large deals realised
   in the current reporting period.
-  Administrative expenses decreased by 28%, largely due to the reduced
   amount of performance bonuses paid during the current reporting period.
-  Finance income increased mainly due to the higher cash balances during
   the current reporting period.
-  Taxation decreased mainly because of a reversal of an over provision in
   the prior reporting period, as well due to changes in deferred tax.

                                                          As at       As at
                                                      28 Feb 18   28 Feb 17
                                                       Reviewed     Audited
                                                          R'000       R'000
CONDENSED CONSOLIDATED STATEMENTS
OF FINANCIAL POSITION

ASSETS
Non-current assets                                       39,268      39,667
Property, plant and equipment                            10,162      10,427
Intangible assets                                           211         920
Loans receivable                                         26,297      27,084
Equity accounted investment                                 766         275
Deferred tax                                              1,832         961

Current assets                                           73,966      73,460
Cash and cash equivalents                                41,713      36,115
Inventories                                               5,370       4,143
Trade and other receivables                              26,865      33,192
Current tax receivable                                       18          10
Total assets                                            113,234     113,127

EQUITY AND LIABILITIES
Equity capital and reserves                              86,610      80,940
Share capital and share premium                           1,560       1,560
Reserves                                                 85,050      79,380

LIABILITIES
Current liabilities                                      26,624      32,187
Trade and other payables                                 25,613      28,700
Current tax payable                                       1,011       3,487
Total liabilities                                        26,624      32,187

Total equity and liabilities                            113,234     113,127

Notes:
-  Property, plant and equipment (PPE) comprises largely the cost of the
   building that is amortised over it’s useful life.
-  Intangible assets comprise of computer software. The reduction of
   intangibles is driven by amortization of trademarks and there were no
   new additions to the intangible assets.
-  Current tax payable decreased largely due to the over provision of tax
   from prior year and this has been reversed in the current reporting
   period.
                                                      28 Feb 18    28 Feb 17
                                                           year         year
                                                          ended        ended
                                                       Reviewed      Audited
                                                          R'000        R'000
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOW

Cash flows from operating activities                     20,539       29,158
Cash receipts from customers                            115,510      147,797
Cash paid to suppliers and employees                    (86,445)    (105,650)
Cash generated from operations                           29,065       42,147
Finance income                                            1,387          929
Finance costs                                                 -         (994)
Taxation paid                                            (9,913)     (12,924)

Cash flows from investing activities                      3,229       (1,246)
Purchase of property, plant and equipment                  (280)        (339)
Proceeds on loan to joint venture                             -          177
Advance to loan receivable                                    -       (1,000)
Proceeds on loans receivable                              3,391        2,409

Cash flows from financing activities                    (15,552)      (9,360)
Dividends paid to ordinary shareholders                 (15,552)      (9,360)

Net increase in cash and cash equivalents                 8,216       21,044
Revaluation of foreign cash balances                     (2,618)      (4,223)
Cash and cash equivalents at beginning of
  the period                                             36,115       19,294
Cash and cash equivalents at end of
  the period                                             41,713       36,115

Notes:
-  Cash flows from operating activities decreased mainly due to decline in
   the turnover.
-  Finance cost reduced because there were no borrowings and no interest
   paid to third parties.
-  Taxation paid reduced in the current year because of the top up payments
   made in the prior year in respect of 2016 financial year as well as the
   utilisation of assessed tax receivable in respect of the 2017 financial
   year.
-  There is a decrease in proceeds on loan to joint venture because there
   were no borrowings to the joint venture at year end.
-  Dividends paid to shareholders increased due to dividends declared at
   10.0 cents per share against dividends of 6.0 cents per share paid in
   the prior reporting period.
                                                          28 Feb 18    28 Feb 17
                                                               year         year
                                                              ended        ended
                                                           Reviewed      Audited
                                                              R'000        R'000
CONDENSED CONSOLIDATED STATEMENTS
OF CHANGES IN EQUITY

Share capital - ordinary shares
Balance at beginning of the period                            1,560        1,560
Balance at end of the period                                  1,560        1,560

Total share capital and share premium                         1,560        1,560

Reserves - retained earnings
Balance at beginning of the period                           79,380       58,991
Total comprehensive income – profit                          21,222       29,749
Dividends paid during the period                            (15,552)      (9,360)
Balance at end of the period                                 85,050       79,380
Total equity capital and reserves                            86,610       80,940

Notes to the statements:

ORDINARY SHARES
                                                               '000         '000
Earnings attributable to ordinary shareholders               21,222       29,749
Number of shares in issue at end of period                  155,996      155,996
Weighted average number of shares in issue                  155,996      155,996
Treasury shares held at end of period                        14,596       14,596

                                                              Cents        Cents

Net asset value per share at end of period                     55.5         51.9
Net tangible asset value per share at end
of period                                                      55.4         51.3
Earnings and diluted earnings per *                            13.6         19.1
Diluted headline earnings per share*                           13.6         19.1

ORDINARY SHARES
                                                               '000         '000
Headline earnings attributable to ordinary shareholders      21,222       29,749
Number of shares in issue at end of period                  155,996      155,996
Weighted average number of shares in issue                  155,996      155,996
Treasury shares held at end of period                        14,596       14,596

                                                              Cents        Cents

Net asset value per share at end of period                     55.5         51.9
Net tangible asset value per share at end
of period                                                      55.4         51.3
Headline and diluted headline earnings per share*              13.6         19.1
Diluted headline earnings per share*                           13.6         19.1


 * There have been no reconciling items that would result in a change to the
   Headline earnings per share and the Diluted headline earnings per share.

OPERATIONAL REVIEW

I am pleased to present our results for the year ended 28 February 2018 (“current
reporting period”), which continues to be underpinned by a high portion of
recurring revenues, a robust financial position and strong cash flows. Despite
the increasingly challenging trading conditions in which we operate, together
with the continued pressure on the local economy, overall performance remains
satisfactory.

During the current reporting period three key factors marred our performance
when viewed against that of our previous corresponding reporting period (“prior
reporting period”), namely the recognition and timing of large deals, the
effects of a volatile and fluctuating exchange rate and the downgrade of our B-
BBEE certificate from an encouraging Level 3 achieved under the ‘old’ ICT sector
codes to a Level 8 achieved under the ‘new’ ICT sector codes (subsequent to the
current reporting period our Level 3 B-BBEE certificate was reinstated under
the ‘new’ ICT sector codes). While these factors are not new and have been
discussed in the past, I would like to make note of them once again to
contextualise our current performance.

Large deals are for us, those that individually make up in excess of 10% of
revenue, of which we usually recognise one or two in any given year. As it is
practically impossible to predict and influence the timing of these large deals,
our results tend to reflect exaggerated comparative growth and contraction from
one reporting period to the next. During the current reporting period we had no
large deals, compared to an atypical amount of revenue recognised from large
deals in the prior reporting period, which then made up 37% of turnover.

Exchange rate fluctuation and volatility is also a major factor in our business,
for two main reasons. Firstly, as the third-party products that we resell to
customers are sourced from abroad and priced in major world currencies, such as
Dollars, Pounds and Euros, our turnover and profit levels are directly impacted
by the effects of exchange rate volatility and fluctuation between these and
the Rand. Secondly, as most of our cash is held in Dollars and Pounds, currently
amounting to 74% of our R41.7 million cash reserve, the revaluation of this
foreign currency through the statements of comprehensive income can have a
material effect on the results in any one period.

Turnover decreased by 32% to R108.3 million compared to the prior reporting
period of R159.7 million, and similarly profit before other income and expenses
decreased by 33% to R47.1 million compared to the prior reporting period of
R70.7 million. While a decrease of this magnitude would usually trigger alarm
bells and a call for remedial action by management, I am satisfied with our
performance in the current reporting period, as it stands in contrast to the
exceptionally high increase in the prior reporting period, namely the increase
of 77% in turnover and 81% in profit before other income and expenses between
the reporting periods ending 2016 and 2017.

Operating costs decreased by 13% to R23.7 million during the current reporting
period, from R27.3 million in the prior reporting period, which improvement
includes a forex revaluation loss of R2.6 million compared to a forex
revaluation loss of R4.2 million in the prior reporting period. If we were to
exclude the effect of forex revaluation losses in both reporting periods,
operating costs would have decreased by 9%, which is substantially better than
anticipated.

Total comprehensive income attributable to equity shareholders decreased by 29%
to R21.2 million during the current reporting period, from R29.7 million in the
previous reporting period, representing a decline in headline earnings per share
and earnings per share to 13.6 cents, from 19.1 cents achieved in the prior
reporting period.
DISTRIBUTION
A final dividend of R15.6 million for the year ended 28 February 2017 was
declared and paid to shareholders during the period under review,
representing    a   gross    distribution    of   10.0    cents   per    share.
The Board is pleased to declare a final dividend to shareholders for the year
ended 28 February 2018 of 13.6 cents per share, to all shareholders recorded in
the shareholders register on 27 July 2018 and payable on 31 July 2018. The last
day to trade cum dividend is Tuesday, 24 July 2018 and the shares trade ex-
dividend as from Wednesday, 25 July 2018, which will be subject to the dividend
tax legislation.

In terms of the dividend tax legislation, effective 1 April 2012, the following
additional information is disclosed:

-   This is a dividend as defined in the Income Tax Act, 1962, and is payable
    from income reserves.
-   The South African dividend tax (DT) rate is 20%.
-   The DT to be withheld by the company amounts to 2.72 cents per share.
-   The net dividend payable to shareholders who are not exempt from DT
    is therefore 10.88 cents per share, while a gross dividend of 13.6 cents
    per share is payable to those shareholders who are exempt from DT.
-   The issued share capital of the company at the declaration date comprises
    170 592 593 ordinary shares.
-   The company’s income tax reference number is 9340/150/71/4.

Share certificates may not be dematerialised or rematerialised between
Wednesday, 25 July 2018 and Friday, 27 July 2018, both days inclusive.

PROSPECTS
As our Level 3 B-BBEE certificate was reinstated under the ‘new’ ICT codes
subsequent to the current reporting period and as the key drivers of the
information security market remain robust, I continue to be optimistic about
the prospects of the group. With the continued evolution and persistence of
threats and attacks against organisational information and IT resources,
together with the increased regulatory and legislative compliance requirements,
stakeholders continue to elevate the importance of IT security within their
organisations. By leveraging this positive sentiment towards the information
security market, as well as our positioning as a thought leader in this market
segment, we are likely to continue delivering above average tangible returns
over time.

BASIS OF PREPARATION
These provisional reviewed condensed consolidated annual financial results have
been prepared by Ms Priscilla Mogoboya, the Financial Director, in accordance
with the framework concepts and the measurement and recognition requirements of
International Financial Reporting Standards (IFRS), the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee and the
Financial Reporting Pronouncements as issued by Financial Reporting Standards
Council, and contains at a minimum the information required by IAS 34, the
Listings Requirements of JSE Limited, and the Companies Act, 2008 (Act 71 of
2008), as amended.

The accounting policies applied in the presentation of these provisional
reviewed condensed consolidated annual financial results, which are based on
reasonable judgments and estimates, are consistent with those applied for the
year ended 28 February 2017.

These provisional reviewed condensed consolidated annual financial results have
been reviewed by the group’s auditor, Mazars, and their unmodified review report
is available for inspection at the registered office of ISA. The auditor’s
report does not necessarily report on all of the information contained in these
financial results. Shareholders may obtain further information regarding the
nature of the auditor’s engagement as per inspection of the report available at
the registered office of ISA. Any reference to future financial performance
included in this announcement has not been reviewed or reported on by the
group’s auditor.

CHANGES IN DIRECTORATE
Roger Pitt (Financial Director) resigned on 13 October 2017.
Priscilla Mogoboya (Financial Director) was appointed on 1 April 2018.

SUBSEQUENT EVENTS
There have been no material subsequent events up to and including the date of
this report.

SPECIAL THANKS
On behalf of the Board, I would like to take this opportunity to thank the ISA
team for their continued dedication and hard work. My appreciation is also
extended to my colleagues on the Board for their wise counsel and valuable
input. Finally, I thank all stakeholders, customers and vendors for their
support.


Clifford Katz
Chief Executive Officer
Johannesburg
29 May 2018

Directors: CS Katz (Chief Executive Officer), PJG Green (Chief Technical
Officer), PM Mogoboya (Financial Director), AJ Naidoo#, N Maphothi*,
DR Perreira* (Chairman), DC Seaton*

# Non-executive
* Independent non-executive

Designated Advisor: Merchantec Capital

www.isaholdings.co.za

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