|
CVN 201312130033A
Reviewed financial results for the year ended 31 August 2013
ConvergeNet Holdings Limited and its subsidiaries
(Registration number 1998/015580/06)
JSE code: CVN ISIN: ZA000182440 (“ConvergeNet” or “the Group” or
“the Company”)
Reviewed financial results for the year ended 31 August 2013
Condensed consolidated statement of comprehensive income
Reviewed Restated
year ended year ended
31 August 31 August
2013 2012
R’000 R’000
Continuing operations
Revenue 270,646 238,481
Cost of sales (213,043) (191,409)
Gross profit 57,603 47,072
Other income 12,495 19,747
Operating expenses (168,836) (134,962)
Impairment of goodwill and other (58,667) (30,151)
financial assets
Fair value adjustments 5,646 (2,808)
Other operating expenses (115,815) (102,003)
Operating loss (98,738) (68,143)
Investment income 520 793
Share of profit of associates - 2,366
Finance costs (815) (629)
Loss before taxation (99,033) (65,613)
Taxation (5,980) (3,834)
Loss for the year from continuing (105,013) (69,447)
operations
Discontinued operations
Net (loss)/profit for the year from (121,254) 19,188
discontinued operations
Loss for the year (226,267) (50,259)
Other comprehensive income:
Exchange profit/(loss) on 388 (388)
translation of foreign operations*
Gains on revaluation of land and 99 -
buildings
Total comprehensive loss for the (225,780) (50,647)
year net of tax
* Recyclable
Loss for the year attributable to:
Equity holders of the parent (209,204) (45,547)
Non-controlling interests (17,063) (4,712)
(226,267) (50,259)
Loss for the year from continuing
operations attributable to:
Equity holders of the parent (101,364) (68,587)
Non-controlling interests (3,649) (860)
(105,013) (69,447)
(Loss)/profit for the year from
discontinued operations attributable
to:
Equity holders of the parent (107,840) 23,040
Non-controlling interests (13,414) (3,852)
(121,254) 19,188
Total comprehensive loss for the
year attributable to:
Equity holders of the parent (208,949) (45,745)
Non-controlling interests (16,831) (4,902)
(225,780) (50,647)
Basic and diluted basic loss per (11.39) (7.72)
share for the year from continuing
operations (cents)
Basic and diluted basic (12.12) 2.60
(loss)/profit per share for the year
from discontinued operations (cents)
Basic and diluted basic loss per (23.51) (5.12)
share for the year (cents)
Headline and diluted headline loss (4.97) (7.81)
per share for the year from
continuing operations (cents)
Headline and diluted headline loss (8.95) (5.21)
for per share the year (cents)
Headline and diluted headline (3.98) 2.60
(loss)/profit per share for the year
from discontinued operations(cents)
Basic and diluted weighted average 888,730,243
number of shares 889,726,462
Total number of shares in issue 921,285,941
970,935,125
Reconciliation between loss and
headline loss
Continuing operations
Basic loss for the year attributable (101,364) (68,587)
to equity holders of parent
Loss on disposal of property, plant 117 151
and equipment
Profit on disposal of associate - (16,363)
Loss/(profit) on disposal of 2,550 (235)
subsidiary
Impairment of goodwill 55,334 13,617
Tax effect of adjustments (826) 2,026
Portion of adjustments attributable - -
to non-controlling interests
(44,189) (69,391)
Reconciliation between loss and
headline loss
Discontinued operations
Basic (loss)/profit for the year (107,840) 23,040
attributable to equity holders of
parent
Loss on disposal of property, plant 600 25
and equipment
Loss on disposal of associate 3,255 -
Profit on disposal of subsidiary (15,020) -
Impairment of goodwill 72,160 -
Loss recognised on the re- 786 -
measurement of assets disposal
groups to its fair
value less costs to sell
Tax effect of adjustments (1,348) -
Portion of adjustments attributable 12,037 -
to non-controlling interests
(35,370) 23,065
Net asset value per share (cents) 22.6 46.0
Net tangible asset value per share 18.7 26.0
(cents)
Condensed consolidated statement of financial position
Restated Restated
Reviewed year year ended
year ended 31 August
ended 31 2011
31 August R’000
August 2012
2013 R’000
R’000
ASSETS
Non-current assets
Property and equipment 4,342 49,281 30,669
Goodwill 34,822 171,199 184,816
Intangible assets 2,910 13,100 19,222
Investments in associates - 6,001 36,155
Other financial assets - 500 42,385
Deferred taxation 9,777 26,326 26,002
51,851 266,407 339,249
Current assets
Inventories 58,688 100,172 85,981
Loans to group companies - 2,273 332
Other financial assets 2,331 7,336 6,168
Current tax receivable 883 1,394 3,410
Trade and other 62,090 253,351 252,566
receivables
Cash and cash equivalents 14,689 66,998 66,961
138,681 431,524 415,418
Non-current assets held 261,126 43,499 -
for sale
399,807 475,023 415,418
TOTAL ASSETS 451,658 741,430 754,667
EQUITY AND LIABILITIES
Total equity
Shareholders equity 219,113 424,145 481,541
Non-controlling interest (8,605) 59,043 63,945
210,508 483,188 545,486
Liabilities
Non-current liabilities
Other financial - 16,730 21,124
liabilities
Finance lease obligation - 6,975 1,039
Operating lease liability 1,251 1,806 1,738
Deferred taxation 106 5,309 6,165
1,357 30,820 30,066
Current liabilities
Other financial 29,241 9,638 1,652
liabilities
Current tax payable 489 6,119 4,794
Finance lease obligation 126 6,968 841
Provisions 1,046 3,101 976
Trade and other payables 55,509 191,949 170,412
Bank overdraft 15,066 502 440
101,477 218,277 179,115
Non-current liabilities 138,316 9,145 -
held for sale
239,793 227,422 179,115
Total Liabilities 241,150 258,242 209,181
TOTAL EQUITY AND 451,658 741,430 754,667
LIABILITIES
Statement of Cash Flows
Group
Reviewed Restated
Year ended Year ended
31 August 31 August
2013 2012
R’000 R’000
Operating activities
Cash utilised in operations (59,451) (5,081)
Investment income 520 793
Finance costs (233) (834)
Tax paid (1,238) 1,857
From discontinued operations 24,083 (3,283)
Net cash utilised in operating (36,319) (6,548)
activities
Investing activities
Additions to property, plant and (854) (2 379)
equipment
Additions to intangible assets - -
Proceeds on disposal of property, plant - 32
and equipment
Proceeds on disposal of other financial 236 14,441
assets
Proceeds on disposal of associates - 936
Proceeds on disposal of investment 18,789 11,812
Other loans advanced - (3 651)
By discontinued operations (19,207) (16,978)
Net cash (utilised in)/from investing (1,036) 4,213
activities
Financing activities
Proceeds from loans 13,172 18
Repayment of loans - (326)
Transaction with non-controlling (21,920) (240)
shareholders
Proceeds from other financial - 117
liabilities
Finance leases paid (142) (128)
Proceeds on re-issue of treasury shares 7,015 -
Dividends paid - (11,506)
By discontinued operations (8,758) 14,766
Net cash (utilised in)/from financing (10,633) 2,701
activities
Net (decrease)/increase in cash and (47,988) 366
cash equivalents
Cash at the beginning of the year 66,496 66,521
Exchange losses - (391)
Cash balances included within assets (18,885) -
held for sale
Total cash at end of the year (377) 66,496
Condensed consolidated statement of changes in equity
Share Treasu Share Foreign Revaluat
Share capital ry based currency ion
capit and shares reserve
al premium payment translati
R’000 R’000 reserve on R’000
R’000 R’000 reserve
R’000
Balance - 7,380 - 137
at 01 435,532 (21,25
September 6)
2011
Prior - - - - - -
year
error
Restated - 7,380 - 137
opening 435,532 (21,25
balance 6)
at 01
September
2011
Loss for - - - - - -
the year
Comprehen - - - - (200) -
sive loss
for the
year
Equity - - - 2,180 - -
settled
share
based
payments
Shares - - 8,260 - -
vested in (8,260)
terms of
forfeitab
le share
plan
Issue of - 1,419 - - - -
treasury
shares in
terms of
forfeitab
le share
plan
Shares - - - - -
issued in (1,350
terms of )
forfeitab
le share
plan not
yet
vested
Shares - - (144) - - -
forfeited
in terms
of
forfeitab
le share
plan
Dividends - - - - - -
paid
Transacti - - - - - -
ons with
non-
controlli
ng
sharehold
ers
Restated - 1,300 (200) 137
balance 436,951 (14,49
at 31 0)
August
2012
Loss for - - - - - -
the year
Comprehen - - - - 200 55
sive loss
for the
year
Shares - - - - -
issued in 15,88
terms of 8
transacti
on with
non-
controlli
ng
sharehold
ers
Equity - - - 476 - -
settled
share
based
payments
Shares - - 876 (876) - -
vested in
terms of
forfeitab
le share
plan
Issue of - - - - - -
treasury
shares in
terms of
forfeitab
le share
plan
Own - - - - -
shares (21,21
acquired 1)
by
subsidiar
ies, held
as
treasury
shares
Own - - - - -
shares 29,521
acquired
by
subsidiar
ies, held
as
treasury
shares
re-issued
Transacti - - - - - -
ons with
non-
controlli
ng
sharehold
ers
Balance 900 - 192
at 31 15,88 436,951 (5,304
August 8 )
2013
Retained Transactio Total Non- Total
earnings ns attributa controlli equity
with non- ble ng
R’000 to equity interests
controllin holders R’000
g of
shareholde the
rs parent
R’000 R’000
Balance 120,243 (59,798) 482,238 64,156
at 01 546,394
September
2011
Prior (697) - (697) (211) (908)
year
error
Restated 119,546 (59,798) 481,541 63,945
opening 545,486
balance
at 01
September
2011
Loss for (45,547) - (45,547) (4,712)
the year (50,259
)
Comprehen - - (200) (188) (388)
sive loss
for the
year
Equity - - 2,180 - 2,180
settled
share
based
payments
Shares - - - - -
vested in
terms of
forfeitab
le share
plan
Issue of - - 1,419 - 1,419
treasury
shares in
terms of
forfeitab
le share
plan
Shares - - (1,350) -
issued in (1,350)
terms of
forfeitab
le share
plan not
yet
vested
Shares - - (144) - (144)
forfeited
in terms
of
forfeitab
le share
plan
Dividends (13,516) - (13,516) -
paid (13,516
)
Transacti - (238) (238) (2) (240)
ons with
non-
controlli
ng
sharehold
ers
Restated 60,483 (60,036) 424,145 59,043
balance 483,188
at 31
August
2012
Loss for - (17,063)
the year (209,204) (209,204) (226,26
7)
Comprehen - - 255 232 487
sive loss
for the
year
Shares - - 15,888 - 15,888
issued in
terms of
transacti
on with
non-
controlli
ng
sharehold
ers
Equity - - 476 - 476
settled
share
based
payments
Shares - - - - -
vested in
terms of
forfeitab
le share
plan
Issue of - - - - -
treasury
shares in
terms of
forfeitab
le share
plan
Own - - (21,211) -
shares (21,211
acquired )
by
subsidiar
ies, held
as
treasury
shares
Own (6,382) - 23,139 - 23,139
shares
acquired
by
subsidiar
ies, held
as
treasury
shares
re-issued
Transacti - (14,375) (14,375) (50,817)
ons with (65,192
non- )
controlli
ng
sharehold
ers
Balance (74,411) 219,113 (8,605)
at 31 (155,103) 210,508
August
2013
Condensed segmental analysis
Information regarding the group’s reportable segments is
presented below.
IT Infrastructure Telecom Africa Site
Technology Infrastructure Maintenance
2013 2012 2013 2012 2013 2012
R’000 R’000 R’000 R’000 R’000 R’000
Revenue 35,540 23,679 234,038 1,068 -
214,802
(Loss)/prof (4,836) 1,764 364
it from (11,563) (3,759) (6,735)
continuing
operations
Investment
income
Share of
profits of
associates
Impairment
of goodwill
and other
financial
assets
Finance
costs
(Loss)/prof
it before
tax from
continuing
operations (4,819) 1,241
(13,328) (1,149) (6,763) (6,234)
Corporate, Total
Consolidation and
Other
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Revenue - - 270,646 238,481
(Loss)/profit from
continuing operations (30,264) (23,034) (40,071) (37,992)
Investment income 520 793
Share of profits of - 2,366
associates
Impairment of goodwill and
other financial assets (58,667) (30,151)
Finance costs (815) (629)
(Loss)/profit before tax
from continuing
operations
(88,692) (44,902) (99,033) (65,613)
Notes to the condensed consolidated annual financial statements
1. Statement of compliance
The condensed consolidated financial statements of
ConvergeNet Holdings Limited (“ConvergeNet”) are prepared in
accordance with the requirements of the JSE Limited Listings
Requirements for provisional reports and the requirements of
the Companies Act of South Africa, Act 71 of 2008 (“Companies
Act”).
The Listings Requirements require provisional reports to be
prepared in accordance with the framework concepts and the
measurement and recognition requirements of International
Financial Reporting Standards (IFRS) and the SAICA Financial
Reporting Guides as issued by the Accounting Practices
Committee and Financial 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.
2. Accounting policies
The results for the year ended 31 August 2013 have been
prepared in accordance with the Group’s accounting policies
which comply with IFRS. The accounting policies adopted are
consistent with those applied in the previous financial year
except for the following:
• The Group has adopted the amendment to IAS 1 requiring
items of other comprehensive income to be split between
those that will not be subsequently recycled to profit or
loss and those that will be recycled to profit or loss in
future if specific conditions are met.
• The Group has restated its statement of comprehensive
income to better align the expenses reported to the
functional classification policy applied by the Group.
See note 4.4 for further details.
• The segmental information has been restated as a result of
a change in the chief operating decision maker’s focus, on
the financial information reviewed, being only results
from continuing operations arising from the restructuring
programme. See note 10 for further details.
• The adoption of all new, revised or amended standards and
interpretations which were effective for the Group from 1
September 2012. These standards have not had a significant
impact on the condensed consolidated financial statements.
3. Estimates
The preparation of condensed consolidated financial
statements requires management to make judgements, estimates
and assumptions that affect the application of accounting
policies and the reported amounts of assets and liabilities,
income and expense. In preparing these condensed financial
statements, the significant judgements made by management in
applying the Group’s accounting policies and key sources of
estimation uncertainty were the same as those applied to the
consolidated financial statements for the prior year.
4. Prior period adjustments and restatements
4.1 Revenue recognition errors noted
The majority of the Sizwe Africa IT Group (Pty) Ltd
(“Sizwe”)’s subsidiaries are party to a major maintenance
and support contract as sub-contractors to the main
contractor. The sub-contractor agreement provides that,
these entities are required to invoice the main contractor
a fixed amount on a monthly basis. In the middle of the
prior year, the main contractor revised the invoicing
terms to “invoicing in arrears”. In changing these terms,
the entities erroneously invoiced the main contractor
twice in one month. This error was identified and
corrected in the current financial year. The earliest
affected prior period is 2012.
A revenue recognition error was also identified in X-DSL
Networking Solutions (Pty) Ltd (“X-DSL”) whereby revenue
was recognised upon the issue of invoices to customers and
not on the stage-of-completion basis as required by IFRS
and in terms of the Group’s accounting policy on revenue
recognition. The earliest affected prior period is 2011.
The correction of these errors resulted in adjustments to
the following financial statement line items related to
the prior year:
Effect on Effect on
prior prior
year ended year ended
31 August 31 August
2012 2011
R’000 R’000
Statement of financial position
Increase in inventories 3 932 -
Decrease in trade accounts (8 932) -
receivable
Increase in deferred income 1 352 908
Increase in deferred taxation 1 524 -
Decrease in Non-controlling (2 112) (309)
interest
Decrease in retained earnings (1 808) (599)
Statement of other
comprehensive income
Decrease in revenue (11 569)# (908)
Decrease in cost of sales 6 125# -
Decrease in taxation 1 524# -
Increase in net loss for the (3 920) (908)
year from discontinued
operations
#
Restated amounts shown as they would have appeared in
prior year reported financial statements before taking
into account discontinued operations.
4.2 Earnings and Headline Earnings per share error noted
Due to losses reported in the prior year, basic loss per
share and headline loss per share were anti-dilutive. This
fact was not taken into account in calculating the diluted
basic loss and diluted headline loss per share in the
prior year. The earliest affected prior period is 2012.
The effect hereof was as follows:
Restated# Reported
year ended year ended
31 August 31 August
2012 2012
R’000 R’000
Diluted basic loss per share (4.92) (4.90)
(cents)
Diluted headline loss per share (5.01) (4.98)
(cents)
#
Restated amounts shown as they would have appeared in
prior year reported financial statements before taking
into account any restatements related to discontinued
operations and prior period errors.
4.3 Intangible assets incorrectly classified as property and
equipment
In the prior year, computer software acquired by a
subsidiary of Sizwe was incorrectly classified as property
and equipment and not as intangible assets as required by
IFRS. The earliest affected prior period is 2011.
The correction of this error resulted in adjustments to
the following financial statement line items related to
the prior year:
Restated Reported Restated Reported
year year year year
ended ended ended ended
31 August 31 August 31 August 31 August
2012 2012 2011 2011
R’000 R’000 R’000 R’000
Statement of
financial
position
Property and
equipment 49 281 54 455 30 669 35 424
Intangible 13 100 7 926 19 222 14 467
assets
This error did not have any effect on the statement of
comprehensive income.
4.4 Statement of comprehensive income by function restated
In the prior year statement of comprehensive income, some
expense items were disclosed by function and others by
nature. The presentation of the statement of comprehensive
income has been amended in the current year to disclose
expense items only by function. The earliest affected
prior period is 2012.
4.5 Incorrect classification of revenue from the sale of
goods and revenue from the rendering of services
In the Revenue note to the financial statements of the
prior year, an error was identified in the classification
of the source of revenue between revenue earned from the
sale of goods and revenue from the rendering of services.
The earliest affected prior period is 2012.
The correction of this error resulted in adjustments to
the following note in the financial statements related to
the prior year:
Restated# Reported
year ended year ended
31 August 31 August
2012 2012
R’000 R’000
Revenue
Sale of goods 641 691 626 811
Rendering of services 375 666 390 546
1 017 357 1 017 357
#
Restated amounts shown as they would have appeared in
prior year reported financial statements before taking
into account any restatements related to discontinued
operations and prior period errors.
4.6 Incorrect treatment of finance leases in statement of
cash flows
In the prior year statement of cash flows, certain motor
vehicles and IT equipment acquired and financed by finance
leases were incorrectly included as items affecting cash
flows. This error resulted in both cash utilised in
investing activities and cash generated from financing
activities being overstated. The earliest affected prior
period is 2012.
The correction of this error resulted in adjustments to
the following financial statement line items:
Restated# Reported
year ended year ended
31 August 31 August
2012 2012
R’000 R’000
Statement of cash flows
Investing activities
Additions to property and (16 721) (30 448)
equipment
Financing activities
Finance leases (paid)/raised (1 664) 12 063
#
Restated amounts shown as they would have
appeared in prior year reported financial statements
before taking into account any restatements related to
discontinued operations and prior period errors.
5. Independent review by the auditors
These condensed consolidated financial statements for the
year ended 31 August 2013 have been reviewed by
PricewaterhouseCoopers Inc. who expressed an unmodified
review conclusion in accordance with the International
Standard on Review Engagements 2410, “Review of Interim
Financial Information Performed by the Independent Auditor of
the Entity”. A copy of the auditor’s review report is
available for inspection at the company’s registered office
together with the financial statements identified in the
auditor’s report.
6. Restructuring and corporate activities
6.1 Northbound
On 1 September 2012, ConvergeNet acquired the remaining
30% interest in Northbound Communication Solutions (Pty)
Ltd (“Northbound”) for a nominal purchase consideration.
6.2 FutureCell
Effective 26 November 2012, ConvergeNet sold its remaining
15% interest in FutureCell (Pty) Ltd for R40.0 million in
cash and the related put and call agreement was cancelled
The investment was held for sale in terms of IFRS 5: ‘Non-
current assets held for sale and discontinued operations’
(“IFRS 5”) at the end of the prior year. On the date of
sale in the current year, a gain on fair value adjustment
of R1.7 million was recognised in the statement of
comprehensive income. No profit or loss on sale of the
investment was recognised.
6.3 ConvergeNet Management Services
On 26 November 2012 ConvergeNet Management Services (Pty)
Ltd (“CMS”) purchased 71.5 million ConvergeNet Holdings
Limited ordinary shares, representing 7.7% of the then
issued share capital of ConvergeNet, at 29.6 cents per
share, for an amount of R 21.2 million from Titan Share
Dealers Proprietary Limited in terms of section 48 of the
Companies Act. These shares were held as treasury shares
and subsequently re-issued during the year for cash and
part settlement of the acquisition of the Sizwe non-
controlling interest.
6.4 NetXcom
On 31 December 2012, ConvergeNet sold its 100% stake in
NetXcom ICT Solutions (Pty) Ltd for R1. The loss on sale
of this subsidiary included in the loss from discontinued
operations is R2.5 million.
6.5 Chrystalpine
On 1 March 2013, ConvergeNet acquired the remaining 26%
interest in Chrystalpine Investments 9 (Pty) Ltd for a
purchase consideration of R20.0 million. The purchase
consideration exceeded the book value of the net assets to
the amount of R21.1 million. This amount is accounted for
directly in “Transactions with non-controlling
shareholders” in the Statement of Changes in Equity.
6.6 Sizwe
On 1 March 2013, ConvergeNet acquired the remaining 25%
interest in Sizwe for a purchase consideration of R45.0
million. The purchase consideration exceeded the book
value of the net assets to the amount of R33.2 million and
is accounted for directly in “Transactions with non-
controlling shareholders” in the Statement of Changes in
Equity.
6.7 Other corporate actions
Following the decision by the directors to rationalise,
reorganise and restructure the Group, On 25 July 2013
ConvergeNet concluded the terms of the sale of its
interest in the following subsidiaries, which disposal was
subsequently approved by shareholders in terms of the
requirement of the Companies Act and the JSE Limited’s
Listings Requirements:
6.7.1 Sizwe
100% of its interest in Sizwe for R120.0 million of
which R40.0 million will be settled in cash once all
suspensive conditions have been met, and R80.0 million
by means of a loan with possible discounts for early
payment.
When the criteria for IFRS 5 were met, the assets and
liabilities were classified as held for sale. An
impairment loss of R50.8 million was recorded in the
condensed consolidated financial statements against
goodwill. At the date of this report, all suspensive
conditions have been met.
The disposal group met the criteria to be classified as
a discontinued operation. (Refer note 8).
Mr Hanno van Dyk is a director of the purchaser and the
seller in the transaction and is therefore a related
party.
6.7.2. X-DSL
100% of its interest in X-DSL, being effectively 66% of
the issued ordinary share capital of the company, and a
shareholder loan account in the amount of R2.4 million,
for a nominal amount to the non-controlling
shareholders.
As at 31 August 2013, all suspensive conditions had
been met and the transaction was unconditional.
This transaction met the criteria to be classified as a
discontinued operation. (Refer note 8).
Goodwill of R4.7 million attributable to X-DSL in the
consolidated financial statements was derecognised as
part of the sale. (Refer note 11).
The profit on sale of this subsidiary included in the
loss from discontinued operations is R2.8 million.
6.7.3. SIMAT
Simat SA, a 51% equity ownership subsidiary in the
Group sold its 100% of its interest in SIMAT Group
Limited (“SIMAT”) for USD 100.
As at 31 August 2013, all suspensive conditions had
been met and the transaction was unconditional.
This transaction met the criteria to be classified as a
discontinued operation. (Refer note 8).
The profit on sale of this subsidiary, due to
substantial losses made by the subsidiary, included in
the loss from discontinued operations is R24.5 million.
6.7.4. Telesto
100% of its interest in Telesto Communications (Pty)
Ltd (“Telesto”) for R7.3 million of which R6.0 million
will be settled in cash once all suspensive conditions
have been met, and R1.3 million by means of a loan.
When the criteria for IFRS 5 were met, the assets and
liabilities were classified as held for sale. An
impairment loss of R16.5 million was recorded against
goodwill in the condensed consolidated financial
statements and a further R 0.6 million against other
assets to account for the disposal group at fair value
less cost to sell in accordance with IFRS 5.
At the date of this report all suspensive conditions
have been met and the transaction became unconditional
on 29 October 2013. The first payment of R6.0 million
was settled on 17 November 2013.
Mr Danie Bisschoff is a director of the purchaser and
the seller in the transaction and is therefore a
related party.
The disposal group met the criteria to be classified as
a discontinued operation. (Refer note 8).
6.8 EQ Tickets
In addition to the disposals referred to above, effective
31 August 2013, Sizwe sold its 100% shareholding in EQ
tickets (Pty) Ltd (“EQ Tickets”), being 100% of the issued
ordinary share capital and loan claims in EQ Tickets, for
R5.0 million, after having reacquired 26% from the then
non-controlling shareholder. The loss on disposal of the
investment in EQ Tickets recognised in the loss from
discontinued operations is R2.2 million.
6.9 Legal and capital structure rationalisation
The Board of Directors of the Group further resolved
during August 2013 to close the Group head-offices and
rationalise the Group’s capital structure which resulted
in:
6.9.1 a provision for retrenchment and other
restructuring accruals to the amount of R3.2 million;
and
6.9.2 a share consolidation on a 1-for-10 basis as part
of a cost-saving and strategic realignment strategy.
7. Operating results
During the year revenue from continuing operations increased
by 13.5% from R238.5 million to R270.6 million, whilst the
gross profit margin increased from 19.7% to 21.3% compared to
the corresponding period, primarily as a result of a change
in the business mix.
Operating expenditure from continuing operations has
increased from R135.0 million to R168.8 million. Included in
operating expenditure are impairments of goodwill and other
financial asset to the amount of R58.7 million (2012:
R30.2million) which resulted primarily due to the
restructuring of the Group and sale of subsidiaries. As a
result of the increase in operating expenses, the Group has
made an operating loss from continuing operations of R98.7
million compared to an operating loss of R68.1million for the
corresponding period.
The Group loss from continuing operations for the year ended
31 August 2013 was R105.0 million (2012: R69.4 million) and
attributable loss from continuing operations was R101.4
million (2012: R68.6 million) resulting in a basic loss per
share of 11.39 cents (2012: 7.72 cents) and a headline loss
of 4.97 cents per share (2012: 7.81 cents).
As a result of the losses made the net tangible asset value
per share decreased by 28.2% to 18.7 cents per share (2012:
26.0 cents per share).
8. Discontinued operations and disposal groups
Discontinued operations relating to Sizwe, X-DSL, Telesto and
SIMAT as described in note 6 above. The financial
information related to these investments is set out below.
Comparative figures have been restated.
Statement of comprehensive income information
Reviewed Restated
year ended year ended
31 August 31 August
2013 2012
R’000 R’000
Revenue 672 875 767 307
Other income, Investment revenue 14 139 3 517
and Share of profits from
associates
Expenses (759 872) (748 490)
(Loss)/Profit before tax from (72 858) 22 334
discontinued operations
Income tax (675) (3 146)
(Loss)/Profit after tax from (73 533) 19 188
discontinued operations
Gain/(loss) recognised on sale of 19 075 -
disposal group
Taxation on sale of disposal group 1 358 -
Net gain recognised on sale of 20 433 -
disposal group
Impairment of goodwill and other
assets recognised on the
re-measurement of disposal groups (68 154) -
Taxation on re-measurement of - -
assets of disposal group$
Net loss recognised on the re- (68 154) -
measurement of disposal groups
(Loss)/Profit for the year from (121 254) 19 188
discontinued operations
$
No deferred taxation asset has been recognised in respect
of the re-measurement of the disposal group to fair value
less cost to sell as it is not expected that the Group
will record future taxable capital gains against which the
deferred tax asset can be utilised.
The major classes of assets and liabilities of the disposal
groups as set out in note 6.7.1 (Sizwe) and 6.7.4 (Telesto)
above are as follows:
Reviewed
year ended
31 August
2013
R’000
Assets classified as held for sale
Property and equipment 27 114
Intangible assets 235
Goodwill 288
Other financial assets 18 274
Inventories 32 451
Trade and other receivables 164 211
Other assets 18 553
261 126
Liabilities classified as held for sale
Other financial liabilities 9 034
Finance lease obligations 16 477
Other liabilities 112 805
138 316
9. Deferred tax assets
Deferred taxation assets of R9.8 million and deferred
taxation liabilities of R0.1 million have been recognised in
the condensed consolidated financial statements of the Group.
Deferred taxation assets have been recognised in respect of
ConvergeNet Management Services (Pty) Ltd (“CMS”) (R3.3
million) and Structured Connectivity Solutions (Pty) Ltd
(R6.3 million) (“SCS”).
SCS is expected to generate sufficient profits in the year
ahead and in future years against which its deferred tax
asset can be utilised. The year-to-date performance is
profitable.
CMS, as part of the Group restructuring programme, has
cancelled its lease with effect from 29 October 2013 and has
retrenched the majority of its staff following implementation
of the corporate actions described in note 6. With a limited
staff compliment, CMS will continue to service the two
remaining entities within the Group, SCS and Andrews Kit
Proprietary Limited trading as Contract Kitting (“Contract
Kitting”). Management fees received from SCS and Contract
Kitting exceed the reduced costs to operate the operations of
CMS and it is therefore expected to generate sufficient
future profits against which the deferred tax asset can be
utilised.
Neither SCS nor CMS are expected to cease trading in the year
ahead.
10. Segment reporting
The Group’s segment reporting follows the organisational
structure and the basis of the nature of goods supplied and
services provided by the Group’s operating divisions in
conformity with the Group’s monthly reporting. It is used
for assessing the financial performance of the business
segments and for allocating resources to these segments.
At 31 August 2013, Danie Bisschoff, who is currently the
chief financial officer and interim chief executive officer,
is the chief operating decision maker (“CODM”). The CODM has
changed the focus and financial information reviewed, being
only results from continuing operations arising from the
restructuring programme. The comparatives have been
restated. Transactions between reportable segments are
conducted on the same terms as other transactions of a
similar nature.
11. Goodwill
Reviewed Reported
year ended year ended
31 August 31 August
2013 2012
R’000 R’000
At beginning of period 171 199 184 893
Impairment – continued operations (55 334) (13 694)
(see note 11.1 below)
Impairment – discontinued operations
(see note 6.7.1 and 6.7.4 above and (72 273) -
note 11.2 below)
Transfer to Sizwe disposal group (288) -
classified as held for sale
Disposal of X-DSL (see note 6.7.2)
Disposal of Sizwe subsidiaries by
Sizwe
(EQ Tickets and Interface Network (4 665) -
Technology (Pty) Ltd)
(3 817) -
At the end of the period 34 822 171 199
11.1 Impairment – continued operations
The impairment of goodwill in respect of continued
operations relates to the investment in Chrystalpine
Investments 9 (Pty) Ltd which owns 100% of Andrews Kit
(Pty) Ltd trading as Contract Kitting.
The recoverable amount of goodwill allocated to Contract
Kitting has been determined based on value-in-use
calculations. These calculations use post-tax cash flow
projections (assuming that pre- and post-tax calculations
deliver the same results by using the company’s weighted
average cost of capital and estimating the pre-tax
discount rate by reflecting the specific amount and timing
of the future tax cash flows) based on financial budgets
approved by management covering a five-year period. Cash
flows beyond the five-year period are extrapolated using
the estimated growth rates stated below. The growth rate
does not exceed the long term average growth rate for the
Information and Communication Technology industry in which
the entities or group of entities operate.
A range of between 6%% and 17% was used when calculating
the weighted average growth rates and terminal value
growth rates of 5%. These rates are consistent with the
forecasts included in industry reports. A post-tax
discount rate of 18% was used which reflect the specific
risks relating to the relevant operating entity. Based on
these projections, an impairment charge of R55.3 million
was recorded.
11.2 Impairment – discontinued operations
Impairment of discontinued operations relates to the
impairment of the goodwill of Telesto amounting to R16.5
million and Sizwe Africa IT Group in the amount of R 50.8
million. In addition, Sizwe has impaired goodwill to the
amount of R5.0 million.
The carrying values were determined using the fair value
of the investments less costs to sell. The fair values of
these calculations were determined by reference to the
sales agreements.
12. Share capital
On 3 December 2012, the Group acquired 71 478 594 of its own
shares for a total consideration of R21.2 million through one
of its subsidiaries. (See note 6.3 above). These shares were
held as treasury shares. On 12 December 2012, 4.0 million of
the treasury shares were re-issued for cash to the amount of
R0.8 million.
On 25 January 2013 ConvergeNet’s shareholders approved the
increase in authorised share capital from 1.0 billion
ordinary shares of 0.01 cents each to 2.0 billion no par
value shares.
On 14 March 2013 a further 27.77 million shares were re-
issued for cash to the amount of R 5.0 million. On 14 May
2013 a further 50.35 million shares were re-issued to the
value of R16.1 million as part settlement of the transaction
referred to in note 6.6 above. On 4 July 2013 9.6 million
treasury shares were re-issued for cash to the amount of R1.2
million.
The above transactions were entered into to fund ongoing
operations and acquisitions.
13. Going concern
The directors have considered the Group’s use of the going
concern assumption at year-end taking into account the
restructuring of the Group. The directors are satisfied that
the Group is a going concern.
The financial statements of inactive subsidiaries Simat
Management Company SA (Pty) Ltd, Navix Distribution (Pty)
Ltd, Northbound Communications (Pty) Ltd, Interface
Facilities Management (Pty) Ltd, Travel Mall (Pty) Ltd and
ConvergeNet Networks (Pty) Ltd will be prepared on a break-up
basis in accordance with IFRS as the going concern assumption
was not considered to be appropriate, however it was
concluded that this does not affect the going concern status
of the Group.
The rationalisation of head-office expenditure and sale of
subsidiaries with historic losses have resulted in a Group
structure which comprises SCS and Contract Kitting as main
operating entities. SCS has shown some improved results
compared to its two year loss history and is profitable on a
year-to-date basis since 31 August 2013 whilst Contract
Kitting is expected to remain profitable and expand on its
product offerings based on budgeted information reviewed by
the directors.
14. Related party transactions and balances
The Group has various related party relationships which
include,
- the current and previous directors,
- Afrasia Corporate Finance (Pty) Ltd (“AfrAsia”),
- AfrAsia Special Opportunities Fund (Pty) Ltd (“ASOF”),
- MOJ Petroleum CC,
- Win-A-Way Investments 15 (Pty) Ltd,
- Moonstone Investments 85 (Pty) Ltd, and
- Eric Andrews Properties (Pty) Ltd
Sizwe Africa IT Group (Pty) Ltd purchased goods and services
to the value of R3.3 million from MOJ Petroleum CC and paid
rent to the amount of R3.0 million to Win-A-Way Investments
15 (Pty) Ltd. Mr Hanno van Dyk is a director of Sizwe and a
shareholder and director of the two suppliers. Sizwe also
purchased services from ASOF to the amount of R11.3 million.
Mr Charles Pettit is a director of both ConvergeNet and
ASOF.
ConvergeNet incurred expenses of R5.7 million for services
rendered by AfrAsia. Mr Charles Pettit is a director of both
ConvergeNet and AfrAsia.
Andrews Kit (Pty) Ltd, a wholly owned subsidiary of the
company, trading as Contract Kitting, paid rental to
Moonstone Investments 85 (Pty) Ltd and Eric Andrews
Properties (Pty) Ltd amounting to R2.4 million and R0.9
million respectively. Mr John Andrews was a director and
shareholder of all three entities.
Remuneration paid to ConvergeNet directors by the company and
its subsidiaries amounted to R9.1 million for the year.
15. Corporate governance
The directors of ConvergeNet endorse the Code of Corporate
Practices and Conduct as embodied in the King III Report on
Corporate Governance and recognise their responsibility to
conduct the affairs of ConvergeNet with integrity and
accountability in accordance with generally accepted
corporate practices. This includes timely, relevant and
meaningful reporting to its shareholders and other
stakeholders, providing a proper and objective perspective of
ConvergeNet.
16. Change in Board of Directors and change in company secretary
Mr NG Nika was appointed on 23 November 2012 as an
independent non-executive director. Mr S Swana and T Modise
resigned as Chief Executive Officer (“CEO”) and executive
director respectively on 1 August 2013 and Mr DF Bisschoff,
the current Group Financial Director was appointed as interim
CEO until 31 December 2013. Subsequent to the reporting
period Mr P van Zyl was appointed on 21 November 2013 as an
independent non-executive director.
Mr Warwick van Breda was appointed as company secretary to
ConvergeNet and its subsidiaries with effect from 1 December
2013, prior to which date the role was fulfilled by Juba
Statutory Services Proprietary Limited.
17. Dividend
The declaration of cash dividends will continue to be
considered by the Board of Directors in conjunction with an
evaluation of current and future funding requirements and
will be adjusted to levels considered appropriate at the time
of declaration.
No dividend has been proposed for the year under review.
18. Events after the reporting period
The directors of the company are not aware of any other
material facts or circumstances not already disclosed above
that require disclosure in this report.
19. Industry and group outlook
Following a financial year of change, the disposal of non-
core and loss-making subsidiaries and a rationalisation of
the capital structure of the Group, the key mandate of the
Board of Directors in the forthcoming financial year will be
to return the Group to profitability in a cost-controlled
manner.
The key subsidiaries, Structured Connectivity Solutions and
CK Solutions, are well positioned to capitalise on strong
domestic demand for ICT infrastructure products and services,
which is expected to continue into the 2014 financial year.
The Group will look to expand on its pan-African base station
management opportunities and diversify its cabling and power
supply product offering to the rail and mining industries.
20. Conclusion
ConvergeNet thanks all our stakeholders. We are grateful for
the continued commitment and support of our customers,
employees, suppliers and shareholders.
Any forward-looking statements in these condensed
consolidated financial statements have not been reviewed nor
audited by the Group’s auditors.
For and on behalf of the Board of Directors
D Tabata DF Bisschoff
Chairman Interim Chief Executive Officer and
Finance director
Centurion
13 December 2013
CORPORATE INFORMATION:
Directors: D Tabata*^ (Chairman), DF Bisschoff, H
van Dyk, L Mangope*^, NG Nika*^, C
Petit*, P van Zyl *^
(* Non-Executive, ^ Independent)
Company secretary and registered office: Warwick van Breda,
7 Killara Road, Bedfordview, 2007
Business Address: Monza Close No 3, Kyalami Business Park,
Kyalami, 1685
Postal Address: P.O. Box 10709, Centurion, 0046
Transfer Secretaries: Computershare Investor Services (Pty)
Ltd, 70 Marshall Street, Johannesburg,
2001
Sponsor: Deloitte & Touche Sponsor Services (Pty)
Ltd, Deloitte & Touche Place, The
Woodlands, 20 Woodlands Drive, Woodmead,
2196
Responsibility for financial statement preparation: Mr DF
Bisschoff CA(SA), the Chief Financial
Officer is responsible for the financial
statements and has supervised the
preparation thereof
Email: info@convergenet.co.za
Web: www.convergenet.co.za
Date: 13/12/2013 11:58:00 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. |
|
