Wrap Text
Unreviewed Condensed Consolidated Interim Results for the six months ended 31 December 2018
ALVIVA HOLDINGS LIMITED
incorporated in the Republic of South Africa
Registration number: 1986/000334/06
ISIN: ZAE000227484
Share code: AVV
(“Alviva” or “the Company” or “the Group”)
UNREVIEWED CONDENSED CONSOLIDATED INTERIM RESULTS
for the six months ended 31 December 2018
COMMENTARY
INTRODUCTION
The Board of Directors presents Alviva’s unreviewed condensed
consolidated interim financial results for the six months ended
31 December 2018.
OVERVIEW
The Group has produced largely satisfactory results for the
period. Revenue has grown by 20%, helped to some degree by
acquisitions made over the previous 18 months. The increased
profitability from these acquisitions has largely been negated by
the increase in the amortisation of the intangibles, recognised
as a result of the purchase price allocation exercise conducted
in terms of IFRS 3: Business Combinations.
The vast majority of our operations are exposed to the South
African economy and so, given that there has been little or no
growth in South Africa during this period, it would be of no
surprise to advise shareholders that this has been a challenging
operating environment.
The decrease in the weighted average number of shares at the end
of December has largely been due to our share re-purchase
programme and has assisted in delivering increased returns to
shareholders. Headline earnings per share were up 10% to 146,2
cents per share (cps) (H1 2018: 133,0 cps).
The increase in our working capital and the consequent low cash
generated from operations is largely due to the exceptionally low
stockholding at the end of June 2018 and to the increased
activity of the Group.
FINANCIAL RESULTS
SEGMENT PERFORMANCE
The ICT Distribution segment increased revenue by 17% and EBITDA
by 16%. This has been a really good performance in a difficult
market and all entities have contributed positively. The newly
acquired entities, VH Fibre Optics Proprietary Limited, Obscure
Enterprises Proprietary Limited and Tricon Services, have
performed to or above expectations and have settled down well
into the Group. Working capital at the end of December largely
reflects the increase in revenue of the entities but stockholding
was approximately R75 million higher than planned due to some
stalled orders and stocking up for worldwide product shortages.
The Services and Solutions segment increased its revenue by 25%
but EBITDA only increased by 2%. The newly acquired entities have
been successfully bedded down and performed well in line with our
expectations. Datacentrix Proprietary Limited, however, had a
challenging six months. There has not been any loss of customers
but, in general, their customers are spending less and there were
no significant projects executed during the period. The pipeline
for all businesses in the segment is encouraging and all efforts
are being applied to ensure a satisfactory execution into the
future.
Centrafin Proprietary Limited (Financial Services segment) had a
good six months with revenue growing by 6%. Initiatives set up
last year are beginning to bear fruit and we are encouraged by
the progress. EBITDA has decreased due to additional expenses
incurred in our re-branding and diversification strategy.
INVESTMENT ACTIVITIES AND FINANCIAL POSITION
Cash generated by operating activities in the six months was R130
million, compared to R352 million for the comparable reporting
period. This decrease was due to working capital increasing by
R333 million since June 2018, which is mainly due to an increase
in business activity in the ICT Distribution segment as well as
the timing issues mentioned earlier.
R160 million has been spent on the acquisitions finalised in the
reporting period and a further R49 million has been utilised to
increase our investment in Sintrex Integration Services
Proprietary Limited. In addition, R53 million has been utilised
to pay some of the contingent consideration, raised on
acquisitions made in the previous year. There has been an
increase in the finance lease receivables book of R128 million
due to the positive growth in Centrafin. The share repurchase
programme has continued with funds of R36 million being applied
and R41 million has been returned to shareholders in the form of
dividends paid.
These payments have been facilitated by using the majority of the
cash resources held at the end of June 2018.
CORPORATE ACTIONS
TRICON SERVICES (“Tricon”)
Alviva completed the acquisition of the Services Division of Tri-
Continental Limited (“Tri-Continental”) on 3 September 2018 for a
cash consideration of approximately R75 million. Tri-Continental
is an IT-based company in London and has operated in the African
market for over 30 years. Alviva has been granted the right to
use the naming rights to “Tricon Services” and it operates as a
division within the Group.
Tricon Services has developed a services operation with a
resource complement of 200 multi-disciplined certified IT
resources that spans 37 countries in Central, East and West
Africa (CEWA) and southern Africa. It services an extensive
network of IT partners, customers and integrators through its
long-term relationship with a number of major international IT
vendors and suppliers.
The transaction meets the definition of a business combination as
set out in IFRS 3: Business Combinations.
Management is in the process of finalising the acquisition method
of recognition in terms of the business combination as the
transaction still falls within the allowable measurement period
as permitted by IFRS 3: Business Combinations.
SINTREX INTEGRATION SERVICES PROPRIETARY LIMITED (“Sintrex”)
On 22 October 2018, Alviva, through its subsidiary DCT Holdings
Proprietary Limited (“DCT”), exercised its option to acquire a
further 59 shares in Sintrex for R49 million, giving DCT a 75.3%
shareholding in Sintrex. The consideration was settled in cash.
OBSCURE ENTERPRISES PROPRIETARY LIMITED (“Obscure”)
On 27 October 2018 Alviva, through its subsidiary DCT, acquired
the balance of the equity (28%) that it did not own of Obscure.
As previously announced in the financial results as at and for
the period ended 30 June 2018, the total purchase price would be
determined and paid on a formula (“formula”) that was based on
the profits for the financial years ending 30 June 2020, 2021 and
2022. This has subsequently been changed by agreement between all
of the parties and the purchase price will now be determined and
paid on the formula based on the profits for the financial years
ending 30 June 2019, 2020 and 2021. Other terms remain the same.
There has not yet been any cash consideration paid to date as it
is based on an earn out and remains a contingent liability based
on the future profitability of Obscure.
MERLYNN INTELLIGENCE TECHNOLOGIES PROPRIETARY LIMITED (“Merlynn”)
On 13 November 2018, Alviva acquired 65% of the equity of Merlynn
for a total consideration of R94 million.
Merlynn is an artificial intelligence developer that is noted for
its ability to “clone” specific human expertise as opposed to
data mining. The Merlynn TOM technology appears to be unique in
the market in this regard. Merlynn’s business is to create
technologies that harness human expertise in a fast, effective,
and accessible manner. The focus is on the financial and
insurance sectors both locally and overseas.
The transaction meets the definition of a business combination as
set out in IFRS 3: Business Combinations.
Management is in the process of finalising the acquisition method
of recognition in terms of the business combination as the
transaction still falls within the allowable measurement period
as permitted by IFRS 3: Business Combinations.
CHANGES TO THE BOARD AND COMMITTEES
There have been no changes to the Board or any of its Committees
for the period under review.
EVENTS AFTER THE REPORTING PERIOD
There were no events material to the understanding of the report
that occurred in the period between the reporting date and the
publication date of this report.
DIVIDENDS
In line with previous periods, no interim dividend is proposed
for the period under review.
PROSPECTS AND STRATEGIC INITIATIVES
The outlook for the year to 30 June 2019 is positive with
earnings per share expected to be above those of June 2018. Our
new acquisitions should contribute positively to the Group
although we expect business activity to remain subdued until
after the general election in May 2019.
Any forward-looking statement has not been reviewed nor reported
on by the Company’s external auditors.
For and on behalf of the Board
A Tugendhaft P Spies
Chairperson Chief Executive Officer
Midrand
6 March 2019
CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
Twelve
Six Six months
months months ended
ended ended 30 Jun
31 Dec 31 Dec 2018
2018 2017 Audited
R’000 R’000 R’000
Revenue (note 2) 7 721 683 6 427 676 13 628 916
Cost of sales (6 398 562) (5 278 166) (11 219 810)
Gross profit 1 323 121 1 149 510 2 409 106
Operating expenses (863 276) (746 943) (1 588 623)
Selling expenses (33 197) (29 240)* (61 688)*
Employee benefit expenses (671 807) (610 264) (1 273 532)
Administration expenses (155 290) (106 707) (237 749)
Impairment loss/
(reversal) on trade
receivables (11 929) 295* (34 235)*
Profit on disposal of
property, plant and
equipment 243 567 634
Gain on discounting of
finance lease
agreements 1 917 1 565 2 656
Gain/(loss) on foreign
exchange differences 6 787 (3 159) 15 291
EBITDA ** 459 845 402 567 820 483
Depreciation and
amortisation (89 058) (52 190) (130 354)
Operating profit
before interest 370 787 350 377 690 129
Net finance costs (64 108) (62 764) (121 257)
Finance income 22 152 17 426 39 909
Finance costs (86 260) (80 190) (161 166)
Profit before tax 306 679 287 613 568 872
Income tax expense (89 484) (80 586) (151 548)
Profit for the period 217 195 207 027 417 324
– Owners of the
Company 213 729 208 993 421 707
– Non-controlling
interests 3 466 (1 966) (4 383)
Other comprehensive income
– Items that may be
reclassified to profit
or loss net of tax: 1 636 (1 701) 1 136
Exchange differences
from translating
foreign operations 1 636 (1 153) 1 684
Cash flow hedge – (548) (548)
Total comprehensive
income for the period 218 831 205 326 418 460
– Owners of the
Company 215 365 207 292 422 843
– Non-controlling
interests 3 466 (1 966) (4 383)
Earnings per ordinary
share (cents)
– Basic earnings per
ordinary share
(note 3) 146,3 133,2 273,5
– Diluted earnings
per ordinary share
(note 3) 143,0 131,2 269,4
* The comparative information is presented merely for the
purpose of comparison between the various reporting periods by
the user. Refer to note 1 for the change in significant
accounting policies.
** Earnings before interest, tax, depreciation and amortisation.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at
As at As at 30 Jun
31 Dec 31 Dec 2018
2018 2017 Audited
R’000 R’000 R’000
ASSETS
Non-current assets 1 816 923 1 307 152 1 554 618
Property, plant and
equipment 124 766 108 475 120 697
Intangible assets
and goodwill 1 016 559 693 408 847 153
Investment in
equity-accounted
investees 64 678 – 62 077
Finance lease
receivables 546 971 440 380 449 930
Deferred tax 63 949 64 889 74 761
Current assets 4 471 064 3 946 956 4 271 704
Inventory (note 8) 1 093 337 931 920 774 111
Trade and other
receivables 2 905 477 2 486 594 2 537 275
Finance lease
receivables 261 008 251 505 230 508
Current tax receivable 19 319 38 38 352
Cash and cash
equivalents 191 923 276 899 691 458
Total assets 6 287 987 5 254 108 5 826 322
EQUITY AND LIABILITIES
Capital and reserves 2 314 480 2 135 574 2 227 404
Stated capital 1 507 1 646 1 584
Treasury shares (89 808) (107 824) (129 090)
Other equity reserves 59 164 35 713 54 268
Retained earnings 2 258 826 2 145 604 2 211 329
Non-controlling
interests 84 791 60 435 89 313
Non-current
liabilities 1 020 256 667 208 943 016
Interest-bearing
liabilities 805 103 543 822 749 636
Non-interest-bearing
liabilities 89 267 39 841 98 635
Contract liabilities 31 818 28 575 11 327
Deferred tax 94 068 54 970 83 418
Current liabilities 2 953 251 2 451 326 2 655 902
Trade and other
payables 2 754 034 2 250 356 2 364 929
Interest-bearing
liabilities 9 292 6 199 42 019
Non-interest-bearing
liabilities 62 642 25 555 68 850
Contract liabilities 107 137 155 026 157 235
Current tax payable 20 146 14 190 22 869
Total equity and
liabilities 6 287 987 5 254 108 5 826 322
ADDITIONAL INFORMATION
Capital management
Net asset value per
share (cents) 1 536,0 1 341,1 1 453,6
Net tangible asset
value per share (cents) 835,7 893,0 877,7
Working capital management
Investment in working
capital (R'000) 1 137 643 1 013 132 789 222
Liquidity and solvency
Debt to equity (%) 36,5 26,5 37,0
Current ratio (excluding
inventory in transit) 1,54 1,63 1,64
Acid test (excluding
inventory in transit) 1,20 1,27 1,39
This information does not form part of the statement of financial
position but is disclosed as additional information for the user.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Twelve
Six Six months
months months ended
ended ended 30 Jun
31 Dec 31 Dec 2018
2018 2017 Audited
R’000 R’000 R’000
Opening balance 2 227 404 2 020 223 2 020 223
Ordinary shares
repurchased (35 701) (86 239) (223 486)
Treasury shares
purchased * – (9 328) (30 598)
Total comprehensive
income 218 831 205 326 418 460
Profit for the period 217 195 207 027 417 324
Other comprehensive
income 1 636 (1 701) 1 136
– Foreign currency
translation reserve
movements 1 636 (1 153) 1 684
– Cash flow hedge
reserve movements – (548) (548)
Transactions with
non-controlling
interests ** (58 620) 41 042 71 245
Equity-settled
share-based payment
transaction 3 260 4 212 11 222
Dividend paid (40 694) (39 662) (39 662)
Closing balance 2 314 480 2 135 574 2 227 404
Attributable to:
Owners of the Company 2 229 689 2 075 139 2 138 091
Non-controlling
interests 84 791 60 435 89 313
* These shares include shares purchased and not cancelled to
service the forfeitable share plan.
** Excluding net profit attributable to non-controlling
interests.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Twelve
Six Six months
months months ended
ended ended 30 Jun
31 Dec 31 Dec 2018
2018 2017 Audited
R’000 R’000 R’000
Profit before tax 306 679 287 613 568 872
Adjusted for:
Finance income (22 152) (17 426) (39 909)
Finance cost 86 260 80 190 161 166
Non-cash items 92 075 59 123 140 087
– Profit on disposal of
property, plant and
equipment (included
in EBITDA) (243) (567) (634)
– Depreciation and
amortisation 89 058 52 190 130 354
– Equity-settled
share-based payment
expense 3 260 4 212 11 222
– Other non-cash items – 3 288 (855)
Changes in working
capital (333 163) (57 313) 218 884
Cash generated by
operating activities 129 699 352 187 1 049 100
Net finance costs (64 108) (62 764) (121 257)
Finance income received 22 152 17 426 39 909
Finance expenses paid (86 260) (80 190) (161 166)
Tax paid (89 301) (77 559) (186 364)
(23 710) 211 864 741 479
Cash flows from
investing activities
Acquisition of property,
plant and equipment (26 699) (18 989) (47 394)
Proceeds on disposals
of property, plant
and equipment 1 297 585 5 059
Acquisition of
intangible assets (6 079) (15 215) (26 447)
Advances of loans to
equity-accounted
investees (2 601) – (62 077)
Acquisition of
subsidiaries (159 550) (150 669) (243 069)
Net investment in
finance lease
receivables (127 541) (44 842) (34 111)
(321 173) (229 130) (408 039)
Cash flows from
financing activities
Proceeds from
interest-bearing
liabilities 24 000 36 000 235 619
Repayment of
interest-bearing
liabilities (6 099) (7 703) –
Repayment of
non-interest-bearing
liabilities (52 576) 400 –
Repurchase of shares (35 701) (95 567) (254 084)
Acquisition of
non-controlling
interests (51 294) – –
Dividends paid (40 694) (39 662) (39 662)
(162 364) (106 532) (58 127)
(Decrease)/increase
in net cash, cash
equivalents and
overdrafts (507 247) (123 798) 275 313
Net cash acquired
from business
combinations 6 076 10 199 24 701
Net cash, cash
equivalents at
beginning of the period 691 458 389 760 389 760
Effects of exchange
rate changes on the
balance of cash held in
foreign currencies 1 636 738 1 684
Net cash, cash
equivalents at end of
the period 191 923 276 899 691 458
SEGMENT ANALYSIS
Twelve
Six Six months
months months ended
ended ended 30 Jun
31 Dec 31 Dec 2018
2018 2017 Audited
R’000 R’000 R’000
REVENUE
ICT Distribution 5 800 811 4 954 474 10 440 627
Services and Solutions 2 195 894 1 757 821 3 685 842
Financial Services 92 381 87 476 175 315
Less: Intra-segment
revenue (367 403) (372 095) (672 868)
7 721 683 6 427 676 13 628 916
EBITDA *
ICT Distribution 260 888 224 894 458 509
Services and Solutions 126 635 124 051 235 673
Financial Services 58 711 61 408 115 926
Group Central Services 13 611 (7 786) 10 375
459 845 402 567 820 483
RECONCILIATION OF PROFIT
Segment EBITDA 459 845 402 567 820 483
Depreciation and
amortisation (89 058) (52 190) (130 354)
Net finance costs (64 108) (62 764) (121 257)
Profit before tax 306 679 287 613 568 872
NET OPERATING ASSETS
ICT Distribution 1 142 669 1 001 659 1 144 079
Services and Solutions 635 343 598 605 611 195
Financial Services 216 407 172 975 193 429
Group Central Services 320 061 362 335 278 701
2 314 480 2 135 574 2 227 404
* Earnings before interest, tax, depreciation and amortisation.
The segments of the entity are based on the information reported
to the chief operating decision maker (CEO) and have not changed
from the prior reporting period.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL RESULTS
1. SALIENT FEATURES OF THE CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
The condensed consolidated interim financial statements
comprise the condensed consolidated statement of financial
position at 31 December 2018, the condensed consolidated
statements of profit or loss and other comprehensive income,
changes in equity and cash flows and notes for the period
then ended. When reference is made to the “Group” in the
accounting policies, it should be interpreted as referring to
the Company, where the context requires, unless otherwise
noted.
RESPONSIBILITY FOR INTERIM RESULTS
The Board takes full responsibility for the preparation of
the condensed consolidated interim financial statements. The
directors are also responsible for such internal control as
the directors determine is necessary to enable the
preparation of the condensed consolidated interim financial
statements that are free from material misstatement, whether
owing to fraud or error.
BASIS OF PREPARATION AND STATEMENT OF COMPLIANCE
The condensed consolidated interim financial statements for
the six months ended 31 December 2018 have been prepared in
accordance with the Group’s accounting policies under the
supervision of the Group Financial Director, Richard Lyon CA,
and comply with the framework concepts and the measurement
and recognition requirements of International Financial
Reporting Standards (“IFRS”), SAICA Financial Reporting
Guides as issued by the Accounting Practices Committee and
Financial Reporting Pronouncements as issued by the Financial
Reporting Standards Council, the Listings Requirements for
interim reports of the JSE Limited, the requirements of the
Companies Act of South Africa (Act 71 of 2008), as amended
and, as a minimum, contain all of the information required by
IAS 34: Interim Financial Reporting.
The condensed consolidated interim financial statements of
the Group are prepared as a going concern on a historical
basis except for certain financial instruments, which are
stated at fair value as applicable.
The condensed consolidated interim financial statements do
not include all the information and disclosures required in
the consolidated annual financial statements, and should be
read in conjunction with the Group’s audited consolidated
annual financial statements as at and for the period ended 30
June 2018.
Neither the condensed consolidated interim financial
statements as at and for the six months period ended 31
December 2017, nor this set of condensed consolidated interim
financial statements information and disclosure, have been
reviewed or audited by the Company’s auditors,
SizweNtsalubaGobodo Grant Thornton Incorporated.
ACCOUNTING POLICIES, ESTIMATES AND JUDGEMENTS
The accounting policies, inclusive of reasonable judgements
and assessments, applied in the condensed consolidated
interim financial statements, are consistent with those
applied in the preparation of the audited consolidated annual
financial statements as at and for the period ended 30 June
2018 except for new standards adopted as of 1 July 2018. The
accounting policies applied comply with IFRS.
The Group has initially applied IFRS 15 and IFRS 9 from 1
July 2018. Other new standards are also effectively applied
from 1 July 2018 but they do not have a material effect on
the condensed consolidated interim results.
IFRS 9: FINANCIAL INSTRUMENTS (“IFRS 9”)
The Group has taken advantage of the exemption in IFRS 9 from
restating prior periods in respect of the classification and
measurement (including impairment) requirements of IFRS 9.
As a result of the adoption of IFRS 9, the Group has adopted
sequential amendments to IAS 1: Presentation of Financial
Statements, which require the impairment of financial assets
to be presented in a separate line item in profit or loss.
Previously, the Group’s approach was to include the
impairment of trade receivables in other expenses. The
reclassification presented in profit or loss is merely for
the user of the condensed consolidated financial statements
in relation to comparability and not regarded as a
restatement.
The adoption of IFRS 9 has not had a material impact on the
Group’s accounting policies in relation to financial assets
and liabilities.
IFRS 15: REVENUE FROM CONTRACTS WITH CUSTOMERS (“IFRS 15”)
The Group has adopted IFRS 15 using the cumulative effect
method, with the effect of initially applying this standard
at the date of initial application i.e. 1 July 2018.
Accordingly, information presented, as previously reported,
has not been restated.
The adoption of IFRS 15 did not have a material impact on the
Group’s accounting policies with respect to the various
revenue streams.
No other standard, interpretation or amendment that has been
issued but is not yet effective, has been early adopted by
the Group.
The preparation of the consolidated annual financial
statements in conformity with IFRS requires management to
make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts
of assets, liabilities, income and expenses. The estimates
and associated assumptions are based on historical experience
and various other factors that are believed to be reasonable
under the circumstances, the results of which form the basis
of making the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates. Estimates and
underlying assumptions are reviewed on an ongoing basis.
Changes to accounting estimates are recognised in the period
in which the estimates are revised and in any future periods
affected.
NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED
A new standard, IFRS 16: Leases, has been issued by the
International Accounting Standards Board prior to the
publication of these condensed consolidated financial
statements, but is only effective in future accounting
periods. The impact of the assessment of this standard has
been fully disclosed in the audited consolidated annual
financial statements as at and for the period ended 30 June
2018. Management still assesses the impact to be material.
PRESENTATION CURRENCY
The condensed consolidated interim financial statements are
presented in South African Rands, the functional currency of
the Group. All amounts are rounded to the nearest thousand,
except where another rounding measure has been indicated in
the condensed consolidated interim financial statements.
COMPARATIVE FIGURES
Unless otherwise indicated, comparative figures refer to the
six months ended 31 December 2017 and to the year ended 30
June 2018, respectively.
FINANCIAL RISK MANAGEMENT
The Group’s financial risk management objectives and policies
are consistent with those disclosed in the audited
consolidated annual financial statements as at and for the
year ended 30 June 2018.
2. REVENUE
The Group’s operations and main revenue streams are those
described in the last annual financial statements. The
Group’s revenue is derived from contracts with customers and
the effect of initially applying IFRS 15 on the Group’s
interim financial statements is described in note 1.
The Group has initially applied IFRS 15 at 1 July 2018. Under
the transition method chosen, comparative information is not
restated.
DISAGGREGATION OF REVENUE
In the following table, revenue is disaggregated by sector
and timing of revenue recognition. The table also includes a
reconciliation of the disaggregated revenue with the Group’s
reportable segments (refer to segment analysis).
Six months ended 31 Dec 2018
R’000
At a Over a
point period
Sector in time of time Total
ICT Distribution 5 705 206 95 605 5 800 811
Services and Solutions 1 394 585 801 309 2 195 894
Financial Services – 92 381 92 381
7 099 791 989 295 8 089 086
Less: Intra-segment
Revenue (367 403)
7 721 683
3. FINANCIAL REVIEW
Twelve
Six Six months
months months ended
ended ended 30 Jun
31 Dec 31 Dec 2018
2018 2017 Audited
Performance per
ordinary share (cents)
Basic and diluted
earnings per ordinary
share
– Basic earnings per
ordinary share 146,3 133,2 273,5
– Diluted earnings per
ordinary share 143,0 131,2 269,4
Headline basic and
diluted earnings per
ordinary share
– Basic headline
earnings per ordinary
share 146,2 133,0 273,2
– Diluted headline
earnings per ordinary
share 142,8 131,0 269,1
Core and diluted
earnings per ordinary
share
– Basic core earnings
per ordinary share 172,4 142,8 302,2
– Diluted core earnings
per ordinary share 168,5 140,7 297,7
Returns (%)
Gross profit 17,1 17,9 17,7
Operating expenses (11,3) (11,6) (11,7)
EBITDA * 6,0 6,3 6,0
Operating profit before
interest and tax 4,8 5,5 5,1
Effective tax rate 29,2 28,0 26,6
Net profit 2,8 3,2 3,1
Return on equity 19,9 20,5 20,4
* Earnings before interest, tax, depreciation and
amortisation.
4. RECONCILIATION OF HEADLINE AND CORE EARNINGS
Twelve
Six Six months
months months ended
ended ended 30 Jun
31 Dec 31 Dec 2018
2018 2017 Audited
R'000 R'000 R'000
Earnings attributable to
ordinary shareholders 213 729 208 993 421 707
Profit on sale of
property, plant and
equipment net of tax (175) (408) (456)
Profit on sale of
property, plant and
equipment (243) (567) (634)
Less: Tax thereon 68 159 178
Headline earnings 213 554 208 585 421 251
Acquisition costs net
of tax 1 437 1 029 2 869
Amortisation of
intangible assets
net of tax 36 900 14 454 41 910
Core earnings ** 251 891 224 068 466 030
Number of ordinary
shares in issue ('000)
– Total number of shares
in issue * 145 160 154 731 147 087
– Weighted average number
of shares in issue * 146 106 156 867 154 192
– Weighted average number
of shares in issue
for purpose of
dilution * 149 507 159 252 156 536
* Adjusted for treasury shares.
** Core earnings per ordinary share is considered a meaningful
additional measure of evaluating the performance of the
Group’s operations. It is based on the headline earnings
measure and adjusted to exclude the amortisation cost of
intangible assets recognised in terms of business
combinations and related business combination acquisition
costs. This is not an IFRS measure.
5. ANALYSIS OF GOODWILL
Twelve
Six Six months
months months ended
ended ended 30 Jun
31 Dec 31 Dec 2018
2018 2017 Audited
R'000 R'000 R'000
Opening balance 564 235 347 846 347 846
Business combinations
during the period 93 871 113 039 216 389
Gridcars Proprietary
Limited – 2 772 –
Sintrex Integration
Services Proprietary
Limited – 61 426 61 426
VH Fibre Optics
Proprietary Limited – 48 841 48 841
Obscure Enterprises
Proprietary Limited – – 39 696
DG Store (SA)
Proprietary Limited – – 66 426
Tricon Services 38 265 – –
Merlynn Intelligence
Technologies
Proprietary Limited 55 606 – –
Closing balance 658 106 460 885 564 235
6. BUSINESS COMBINATIONS
6.1 TRICON SERVICES (“Tricon”)
On 3 September 2018, Alviva, through its subsidiary Axiz
Proprietary Limited, purchased the services and service
desk cash-generating unit of Tri-Continental Limited
(“Tri-Continental”) for a cash consideration of
approximately R74,55 million.
Tri-Continental is an IT-based company in London and has
operated in the African market for over 30 years. Alviva
has been granted the right to use the naming rights to
Tricon Services and it operates as a division within the
Group.
Tricon has developed an operation in Central, East and
West Africa (CEWA) as well as in southern Africa and
continues to service an extensive channel of IT partners
and customers through its long-term relationship with
IBM and Lenovo. In terms of the strategy adopted by the
Group, the Board of Directors identified the solutions
offering of Tricon as a complimentary service line
offering to current and future customers as well as
synergistic end-to-end solutions within the current
spectrum of services of the Group.
In the four months to the reporting date, Tricon
contributed revenue of R37,7 million and profit of R7,7
million to the Group’s results. If the acquisition had
occurred at the beginning of the reporting period, the
contributions would have remained unchanged.
The total consideration was settled in cash by way of
electronic transfer during September 2018.
The fair value of the identifiable assets and
liabilities included in the consolidated results of
Alviva Holdings Limited on the date of acquisition,
compared to the carrying amounts of the identifiable
assets and liabilities recognised in the accounting
records of the acquiree immediately before the
acquisition, was as follows:
Previously
Fair value recognised
recognised at carrying
acquisition amount by
date acquiree
R'000 R'000
Intangible assets 50 395 –
Total assets 50 395 –
Deferred tax (14 110) –
Total liabilities (14 110) –
Identifiable net assets 36 285
Non-controlling interest -
Acquirer's interest 36 285
Purchase consideration 74 550
Goodwill on acquisition 38 265
Cash flow information
Cash and cash
equivalents acquired –
The fair values have been determined on a provisional
basis. If any new information obtained within a year
from the acquisition date about the facts and
circumstances that existed at the acquisition date
identifies adjustments to the above amounts, or any
additional provisions that existed at the acquisition
date, then the acquisition accounting will be revised.
No trade debtors or receivables were acquired.
The goodwill from this business combination will have no
impact on the tax asset or liability of the acquirer or
acquiree.
No contingent liabilities were recognised as a result of
the business combination.
6.2 MERLYNN INTELLIGENCE TECHNOLOGIES PROPRIETARY LIMITED
(“Merlynn”)
On 13 November 2018, the Group obtained control of
Merlynn Intelligence Technologies Proprietary Limited
(“Merlynn”) by acquiring a 65% interest in the issued
stated capital and voting rights of the company.
Merlynn is in the business of replicating and scaling
human expertise through the technology of artificial
intelligence. In terms of the strategy adopted by the
Group, the Board of Directors identified the solutions
offering of Merlynn as a complementary service line
offering to current and future customers as well as
synergistic end-to-end solutions within the current
spectrum of services of the Group.
In the two months to the reporting date, Merlynn
contributed revenue of R2,6 million and profit of
R183 000 to the Group’s results. If the acquisition had
occurred at the beginning of the reporting period,
Merlynn would have contributed revenue of R7,7 million
and profit of R915 000 to the Group’s results.
R85 million of the total consideration was settled in
cash by way of electronic transfer during November 2018.
Contingent consideration estimated at R9 million, based
on the audited results of the 2020 reporting period, has
been recognised. The total consideration recognised in
terms of this business combination amounts to
R94 million.
The fair value of the identifiable assets and
liabilities included in the consolidated results of
Alviva Holdings Limited on the date of acquisition,
compared to the carrying amounts of the identifiable
assets and liabilities recognised in the accounting
records of the acquiree immediately before the
acquisition, was as follows:
Previously
Fair value recognised
recognised at carrying
acquisition amount by
date acquiree
R'000 R'000
Property plant and equipment 2 750 2 750
Intangible assets 83 792 –
Investments 1 1
Deferred tax 531 531
Trade and other receivables 1 402 1 402
Cash and cash equivalents 6 076 6 076
Total assets 94 552 10 760
Other financial liabilities (4 839) (4 839)
Deferred tax on intangible
asset: customer relationship (23 462) –
Trade and other payables (435) (435)
Contract liabilities (6 200) (6 200)
Current tax (548) (548)
Total liabilities (35 484) (12 022)
Identifiable net assets 59 068 (1 262)
Non-controlling interest (20 674)
Acquirer's interest 38 394
Purchase consideration 94 000
Goodwill on acquisition 55 606
The impact on the statement of
cash flows of the acquisition
was as follow:
Consideration to be settled
by cash 85 000
Cash and equivalents at
acquisition date (6 076)
Net cash outflow of acquisition 78 924
The total intangible assets acquired are classified as
customer relationships due to the fact that the TOM
software, although being separately identifiable, has no
reliable determinable fair value. The customised
software is continuously updated to meet the
requirements of specific customers which is indicative
of a close relationship between the customer
relationship intangible asset and the software. Due to
the fact that no active market exists for the customised
internally developed software, no reliable basis for the
separate measurement of the components could be
determined by management.
The fair values have been determined on a provisional
basis. If any new information obtained within a year
from the acquisition date about the facts and
circumstances that existed at the acquisition date
identifies adjustments to the above amounts, or any
additional provisions that existed at the acquisition
date, then the acquisition accounting will be revised.
The fair value of the trade and other receivables
acquired represents the future contractual amounts
receivable due to the fact that none of the trade and
other receivables extends beyond the contract term.
Management is of the opinion that all outstanding trade
and other receivables are recoverable.
The non-controlling interest related to the business
combination was measured at the proportionate share of
the recognised amounts of the acquiree’s net
identifiable assets.
The goodwill from this business combination will have no
impact on the tax asset or liability of the acquirer or
acquiree.
7. CHANGES TO NON-CONTROLLING INTERESTS
7.1 SINTREX INTEGRATION SERVICES PROPRIETARY LIMITED
(“Sintrex”)
Effective 31 October 2017, Alviva, through its
subsidiary DCT Holdings Proprietary Limited (“DCT”),
entered into an agreement to acquire 51% of the
shareholding in Sintrex for R102 million with an option
to acquire a further 24% within a two-year period
following the effective date of the transaction.
The option was exercised during the current financial
period and on 22 October 2018, DCT acquired the
remaining 24% for an amount of R49 million.
7.2 OBSCURE ENTERPRISES PROPRIETARY LIMITED (“Obscure”)
With effect from 1 February 2018, Alviva, through its
subsidiary DCT, acquired 72% of the equity of Obscure
for a total estimated contingent purchase consideration
of R72 million based on future earnings.
On 27 October 2018, the Group acquired the remaining 28%
of Obscure for an estimated contingent consideration of
R28 million on the same terms and conditions.
8. INVENTORY ANALYSIS
Twelve
Six Six months
months months ended
ended ended 30 Jun
31 Dec 31 Dec 2018
2018 2017 Audited
R'000 R'000 R'000
Inventory on hand 900 369 815 392 635 285
Inventory in transit 145 754 82 236 112 729
Work in progress 47 214 34 292 26 097
1 093 337 931 920 774 111
9. FAIR VALUE HIERARCHY
A summary of the financial instruments measured at fair value
is set out below.
Fair value hierarchy:
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.
The following table presents the Group’s material financial
instrument that is measured at fair value:
Twelve
Six Six months
months months ended
ended ended 30 Jun
31 Dec 31 Dec 2018
2018 2017 Audited
Level R'000 R'000 R'000
Contingent
consideration 3 135 168* – 150 761*
* The contingent consideration is classified as part of the
non-interest-bearing liabilities in the statement of
financial position.
The fair value of financial instruments traded in active
markets is based on quoted market prices, which represent
actual and regularly occurring market transactions between
market participants at the reporting date.
The fair value of financial instruments that are not traded
in an active market (for example, over-the-counter
derivatives) is determined by using valuation techniques. If
all significant inputs required to fair value an instrument
are observable, the instrument is included in level 2.
If one or more of the significant inputs are not based on
observable market data, the instrument is included in level
3.
The fair value of contingent consideration was determined at
the reporting date using the discounted cash flow method. The
inputs into the model included the expected cash flows in
terms of the performance conditions of the acquirees, based
on internally prepared budget and forecasted estimates,
discounted at an intrinsic borrowing rate of the treasury
function of the Group. Based on the expected timing of the
cash flows related to the contingent consideration and the
respective acquisition dates of the respective entities, the
fair value at the reporting date approximates the contingent
consideration recognised on the acquisition dates of the
business combinations.
For all other financial assets and liabilities, the carrying
value is considered to approximate the fair value.
Midrand
6 March 2019
SPONSOR:
Deloitte & Touche Sponsor Services Proprietary Limited
ALVIVA HOLDINGS LIMITED
incorporated in the Republic of South Africa
Registration number: 1986/000334/06
ISIN: ZAE000227484
Share code: AVV
(“Alviva” or “the Company” or “the Group”)
DIRECTORS:
A Tugendhaft * (Chairperson), P Spies (Chief Executive Officer),
SH Chaba*^, RD Lyon (Chief Financial Officer), N Medupe *^,
P Natesan*^ (Lead Independent Director)
* Non-executive ^ Independent
REGISTERED OFFICE:
The Summit, 269, 16th Road, Randjespark, Midrand, 1685
PREPARER OF RESULTS: RD Lyon CA
COMPANY SECRETARY: SL Grobler CA (SA)
TRANSFER SECRETARIES:
Computershare Investor Services Proprietary Limited,
Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196
AUDITORS:
SizweNtsalubaGobodo Grant Thornton Inc., Registered Auditors,
Summit Place Office Park, Building 4, 221 Garstfontein Road,
Menlyn, 0081
SPONSOR:
Deloitte & Touche Sponsor Services Proprietary Limited,
Building 8, Deloitte Place, The Woodlands,
20 Woodlands Drive, Woodmead, 2196
www.alvivaholdings.com
Date: 06/03/2019 03:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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