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FWX
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FWX - Foneworx - Audited Annual Financial Statements: Year Ended 30 June 2007.
FONEWORX HOLDINGS LTD
(FORMERLY INTERCONNECTIVE SOLUTIONS LIMITED)
COMPANY REGISTRATION NUMBER 1997/010640/06
SHARE CODE: FWX
ISN CODE: ZAE000086237
AUDITED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007.
CHIEF EXECUTIVE OFFICER`S REVIEW
I am pleased to present the audited annual financial statements for the year
ended 30 June 2007.
Revenue increased by 75% from R33 million to R58 million.
Earnings before net interest, tax, depreciation and amortization ("EBITDA")
improved to R13,1 million (2006 : R3,8 million) which is an increase of 245%,
and net profit before tax was R11,9 million (2006 : R2,5 million), an increase
of 376% against the previous year.
Earnings increased by 252% from 2.24 cents per share to 7.89 cents per share and
headline earnings increased by 223% from 2.54 cents per share to 8.20 cents per
share.
Profit before tax, expressed as a percentage to revenue, improved to 20.5%
(2006: 7.5%). This is essentially due to the automated systems being able to
accommodate more transactions with minimal need for additional capital or human
resource. Gross profit was R30.5 million (2006 - R17.4 million), which as a
percentage of revenue was constant at 52%. Direct operating costs, which
consist primarily (95%) of payments to dealers and service providers, totaled
R27.7 million (2006 - R15.8 million).
Assessable losses for tax purposes were used up during the year, resulting in an
effective tax rate for the year of 24.5%. It is anticipated that tax will be
paid at the full current rate of 29% in the future.
The group`s cash position improved substantially to R14.6 million (2006 : R4.5
million). The group remains debt free save for short-term finance for vehicles
and capital equipment, which amounts to R2.9 million in aggregate.
As a group we are constantly trying to reinvent our business by developing new
concepts, services and products. During the year under review, R700,000 was
expensed on developing new products incorporating the Virtual Business Centre
("VBC") as well as a FICA/RICA enrolment and authentication service.
I am pleased to report that during the year, FoneWorx purchased a 50% share in a
building in Randburg at a cost of R4.25 million, which now comprises the new
Head Office for the Group. Our 50% share entitles us to use 50% of the property,
and the purchase price was fully financed by a bank. In February 2007, we moved
to our new offices which were completely refurbished to accommodate our future
growth. I am also proud to report that we have developed a state-of-the-art
innovation and hosting centre which ensures that we provide our clients with up-
to-date hosting facilities and caters for our anticipated growth incorporating
our new products and services. The cost of refurbishment of our share of the
building as well as the investment in the innovation centre amounted to R1,25
million.
FoneWorx has four defined divisions which comprise: Infotainment Services,
Business Services, Content Services and Switching Services. Each of these
divisions is in a different stage of development.
Infotainment and Business Services are more mature and within these divisions we
constantly refine, add new layers of value and leverage volumes via system
sophistication.
Content and Switching are in their early life cycle phase. Earnings are
expected to start small, yet there is substantial upside in these new divisions.
Content and Switching Services will require upfront investment and more of
management`s time. We are excited by the potential of these services which are
essential to the growth of the group.
Infotainment
FoneWorx has developed its own proprietary date and voice platform which
currently operates over 1,200 channels and hosts a broad range of services. The
platform offering was enhanced during the year with the development of a user
interface or "dashboard" which enables our clients to initiate, script and
manage their own services remotely. This development enhances the intellectual
property of the platform and the service offering.
FoneWorx has established itself as one of the few service providers that can
manage services in Africa, which is done from our Randburg offices. FoneWorx
has established relationships in 27 countries in Africa and interfaced with over
52 cellular networks. A number of well-known campaigns were managed throughout
Africa, including Idols West Africa and Big Brother Africa II. FoneWorx has
been appointed as the preferred service provider to MultiChoice ("MMobile") for
services in Africa. In addition, FoneWorx is the preferred service provider to
the SABC and is currently involved in a number of new projects with the SABC.
The primary services provided by FoneWorx in the Infotainment division include:
promotions, competitions, voting and information services. The client base
includes a broad range of advertising agencies and fast moving consumer goods
companies. Dedicated sales personnel service this division.
Business Services
Business Services incorporate fifteen services which include:
Address Book
Fax2Email
PC2Fax
Data Storage
SMS
Auto Receptionist (PBX)
Business and Legal Forms
Telco Service and Products
Accounting
SurveyOnline
Credit Card Processing
VoIP Call
Diary Service
Conference Call
Email
These services are either sold discreetly as individual offerings or in
aggregate via our Virtual Business Centre ("VBC") which is a combination of the
fifteen services in one portal, and which has a prepaid back-end billing engine.
VBC embraces the convergence of technology and is aimed at the SMME market. It
allows subscribers to access cutting-edge technology on a true "pay-to-use"
basis.
The range of business services is sold to the market via a focussed dealer
network which has now grown to 140 dealers (2006: 108). Dealers are fully
trained and are provided with a fully integrated web-based administration
interface to enable them to remotely sign on and manage new clients.
FoneWorx also received firm interest for the deployment of the Virtual Business
Centre in Nigeria and Kenya. In addition, interest has also been shown in Ghana
for the deployment of a FoneWorx voice and data switch. These initiatives
clearly reflect that the FoneWorx platform offering and services are well placed
for export potential, particularly within Africa.
The phenomenal growth in Business Services contributed strongly to the group`s
strong earnings during the period under review.
Content Services
FoneWorx concluded agreements with all the major music labels (Sony/BMG,
Universal, Gallo/Warner, EMI) and independent labels in order to acquire access
to full track music content for downloads to personal computers and mobile
devices, in digital format. FoneWorx also concluded an agreement with Telkom to
host and manage the Telkom music portal within DO Broadband. This new
development puts FoneWorx in a strong position to provide similar services to
other media companies who wish to provide content services to their clients.
This division is an enhancement to the FoneWorx technical platform and opens up
some new and innovative revenue streams for the group.
FoneWorx will continue to grow the breadth and depth of content so as to provide
a comprehensive offering to media players both in South Africa and particularly
throughout Africa.
Switching Services
FoneWorx has developed an exciting and innovative authentication service for
compliance of the Financial Intelligence Centre Act, 2001 ("FICA") and
Regulation of Interception of Communications and Provision of Communication
Related Information Act, 2002 ("RICA"). This application is aimed at natural
and juristic persons and will provide invaluable assistance to accountable
institutions. This new concept, as well as early tests to banks, attorneys and
retail outlets, has shown promising response, and it is hoped to commercially
launch this product during the latter part of 2007.
FoneWorx will earn revenue on an initial subscription and thereafter on a
transaction basis. The market for FICA/RICA compliance, particularly within the
financial and cellular markets, is enormous. Stringent and conservative
regulation will increase the market for this product.
FoneWorx has also presented and conceptualised the launch of a debit card in
association with the FICA/RICA application. This card, whilst it is aimed at a
broad living standards measurement ("LSM") profile, will also focus on the
unbanked and incorporate mobile applications.
Prospects
I am confident about the outlook for the ensuing year to June 2008 and look
positively to the growth of our new divisions.
The group is well positioned for sustainable organic growth, whilst management
will constantly look at acquisitive opportunities to either enhance or fast-
track any of our operating divisions.
The group has a stronger balance sheet, coupled with improved cash flows, which
will assist in our future growth.
I believe that there is tremendous opportunity in digital media, particularly
with cellphones, the "third television screen", outnumbering both television and
PC screens worldwide.
Our content division will thus be well placed to provide relevant content to a
new and emerging market who can now receive content on their handsets. I also
believe there is tremendous opportunity within our switching division to provide
solid solutions for FICA/RICA and services to the currently unbanked markets.
I would once again like to express my appreciation to my co-directors, staff,
dealers and network suppliers for the part they have played over the past year.
I would also like to express my appreciation to our shareholders for their
continued support.
Mark Smith - Chief Executive Officer
20 September 2007
FONEWORX HOLDINGS LIMITED (formerly
Interconnective Solutions Ltd)
GROUP BALANCE SHEET AS AT 30 JUNE
2007
2007 2006
R `000 R `000
ASSETS
Non current assets 6,782 5,054
Property plant and equipment 5,927 3,904
Intangible assets 46 400
Investment in associate and joint 809 750
ventures
Current assets 29,354 15,092
Inventory 30 145
Loans to directors, managers and 1 12
employees
Current tax receivable 256 -
Trade and other receivables 14,420 10,406
Cash and cash equivalents 14,647 4,529
Total assets 36,136 20,146
EQUITY AND LIABILITIES
Capital and reserves 17,187 8,183
Share capital 114 114
Share premium 14,044 14,044
Accumulated profits (losses) 3,029 (5,975)
Non current liabilities 2,930 1,955
Installment sale agreements 1,905 1,542
Deferred Tax Liability 554 -
Loans Payable 471 413
Current liabilities 16,019 10,008
Trade and other payables 15,023 9,206
Current portion of non current 996 802
liabilities
Total equity and liabilities 36,136 20,146
FONEWORX HOLDINGS LIMITED (formerly Interconnective Solutions Ltd)
GROUP INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2007
2007 2006
R `000 R `000
Revenue 58,241 33,191
Other operating income
319 57
Direct Operating Costs (27,731)
(15,813)
Staff Costs (11,565)
(7,771)
Depreciation and amortisation expense
(1,764) (1,291)
Other operating expenses
(6,152) (5,909)
_________ ________
Profit from operations 11,348
2,464
Finance costs
(256) (131)
Investment income
845 174
Profit from ordinary activities 11,937
2,507
Income tax expense
(2,933) -
Net profit for the year 9,004
2,507
Opening accumulated losses
(5,975) (8,482)
Closing accumulated profits (losses) 3,029
(5,975)
Basic earnings per share 7.89c 2.24c
Headline earnings per share 8.20c 2.54c
FONEWORX HOLDINGS LIMITED (formerly Interconnective Solutions Ltd)
GROUP STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2007
2007 2006
R `000 R `000
Share capital
114 114
Balance at beginning of year
114 110
Issued during the year
- 4
Share premium 14,044
14,044
Balance at beginning of year 14,044
13,298
Issued during the year
- 746
Accumulated losses
3,029 (5,975)
Balance at beginning of year
(5,975) (8,482)
Attributable profits
9,004 2,507
17,187
8,183
FONEWORX HOLDINGS LIMITED (formerly Interconnective Solutions Ltd)
GROUP CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2007
2007 2006
Note R `000 R `000
Cash flow from operating 12,998
activities 2,271
Net cash generated from A 15,044
operations 2,228
Finance Costs
(256) (131)
Investment Income
845 174
Normal tax paid B
(2,635) -
Cash flow from investing
activities (3,495) (3,680)
(Increase) in investment
in subsidiaries and associates
(59) (750)
Purchase of property, plant and
equipment (3,512) (2,900)
Proceeds on disposal of
property, plant and equipment 93 -
Purchase of intangible assets
(17) (30)
Cash flow from financing
activities 615 2,924
Share capital and share premium
introduced - 750
Increase in non-current
liabilities 421 1,654
Increase in current portion of
non current liabilities 194 520
Net increase in cash and cash 10,118
equivalents 1,515
Cash and cash equivalents at 4,529
beginning of year 3,014
Cash and cash equivalents at C 14,647
end of year 4,529
FONEWORX HOLDINGS LIMITED (formerly Interconnective Solutions Ltd)
NOTES TO THE GROUP`S CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE
2007
2007 2006
R `000 R `000
A
RECONCILIATION OF PROFIT BEFORE
TAXATION TO CASH GENERATED FROM
OPERATIONS
Profit before taxation 11,937
2,507
Adjustments for: 1,178
1,246
Amortisation
371 512
Depreciation 1,393
777
Finance costs
256 131
Loss on disposal of property,
plant and equipment 3 -
Investment income
(845) (174)
Operating profit before working 13,115
capital changes 3,753
Working capital changes 1,929
(1,525)
Decrease (increase) in inventory
115 (55)
(Increase) in trade and other
receivables (4,003) (4,283)
Increase in trade and other 5,817
payables 2,813
Cash generated from operations 15,044
2,228
B NORMAL TAX PAID
Charge per the income statement
(2,933) -
Adjustments to deferred tax
554 -
Movement in tax balance
(256) -
Normal tax (paid)
(2,635) -
C CASH AND CASH
EQUIVALENTS
Cash and cash equivalents consist
of cash on hand and balances with
banks. Cash and cash equivalents
included in the cash flow
statement comprise the following
balance sheet amounts:
Cash and cash equivalents 14,647
4,529
14,647
4,529
ACCOUNTING POLICIES AND BASIS OF PREPARATION:
The financial statements have been prepared in accordance with International
Financial Reporting Standards and in compliance with IAS34, and the policies are
consistent with those used in the preparation of the audited financial
statements for the year ended 30 June 2006.
Further salient information:
Audit: The auditors, G Cambanis Inc., have issued their opinion on the Group
financial statements for the year ended 30 June 2007. A copy of the auditor`s
unqualified report is available for inspection at the company`s registered
office.
Annual General Meeting:
The annual general meeting of the members of FoneWorx Holdings Ltd will be held
at 10.00 on Friday 02 November 2007 in the boardroom of the company at Corner of
Bram Fischer Drive and Will Scarlet Road, Ferndale, Randburg, Johannesburg, 2193
(entrance in Will Scarlet Road).
DIVIDEND:
The directors have not recommended the payment of a dividend for the year ended
30 June 2007.
Date of mailing of Annual Financial Statements: On or about 28 September 2007.
Website: www.foneworx.co.za
DIRECTORS
Ronald Graver
Ashvin Govan Mancha B Proc * - Chairman
Gaurang Mooney BA * (Botswana)
Robert Russell
Mark Smith BA LLB - Chief Executive Officer
Gareth Tudor CA (SA) - Financial Director
(* Independent non-executive)
BUSINESS AND REGISTERED OFFICE
Corner Bram Fischer Drive and Will Scarlet Road, Ferndale, Randburg, 2193
PO Box 3386, Pinegowrie, 2123
Telephone +27-11-293-0000
Fax 086-610-1000 / +27-11-787-2137
TRANSFER SECRETARIES
Computershare Investor Services 2004 (Pty) Ltd
Ground Floor, 70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Telephone +27-11-370-7700 , Fax +27-11-688-7716
Website www.computershare.com
AUDITORS
G. Cambanis Inc
ATTORNEYS
De Wet Wrigglesworth Inc
BANKERS
Absa Bank Ltd
Investec Bank Ltd
Standard Bank of SA Ltd
SECRETARY
G H Tudor CA (SA)
PO Box 3386, Pinegowrie, 2123
DESIGNATED ADVISER
Deloitte and Touche Sponsor Services (Pty) Ltd
Date: 20/09/2007 13:02:01 Produced by the JSE SENS Department.
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