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PNC
PNC
PNC - Pinnacle Technology Holdings - Audited Results For The Year
Ended 30 June 2007
Pinnacle Technology Holdings Limited
Registration number: 1986/000334/06
Share Code: PNC
ISIN: ZAE000022570
AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2007
HIGHLIGHTS
- Revenue increased by 62%
- Operating profit increased by 74%*
- Headline earnings per share increased by 68%
- Shareholder distribution increased by 43%
"It was a year of considerable growth for the Pinnacle Group. Strategies
implemented during the past three years have come to fruition with
exceptional sales growth in all the operating units."
- AJ Fourie
GROUP INCOME STATEMENT
for the year ended 30 June 2007
2007 2006
R`000 R`000
Revenue 1 715 844 1 060 793
Cost of sales (1 440 292) (893 708)
Gross profit 275 552 167 085
Operating expenses (161 145) (104 793)
Recovery of bad debt - 5 159
BEE transaction charges - (50 330)
EBITDA 114 407 17 121
Depreciation (5 336) (4 426)
Impairment of intangible assets (563) (709)
Operating profit 108 508 11 986
Investment income 4 794 5 051
Finance costs (7 729) (4 619)
Net profit before taxation 105 573 12 418
Taxation (30 246) (18 688)
Net profit/(loss) for the year 75 327 (6 270)
Attributable to:
Minority shareholders 573 (59)
Ordinary shareholders 74 754 (6 211)
Earnings per share (cents) 51,2 (4,3)
Weighted average number of shares
in issue (`000) 146 079 145 738
Headline earnings per share (cents) 51,6 30,8
Weighted average number of shares
in issue (`000) 146 079 145 738
Reconciliation of headline earnings per share
Net profit for the year 74 754 (6 211)
Add back:
BEE transaction charges - 50 330
Amortisation of goodwill 563 709
75 317 44 828
Fully diluted headline earnings
per share (cents) 42,2 29,5
Weighted average number of shares
in issue (`000) 183 361 154 727
Reconciliation of fully diluted headline
earnings per share
Net profit for the year 74 754 (6 211)
Add back:
BEE transaction charges - 50 330
Amortisation of goodwill 563 709
Deemed interest on deemed loans 2 042 881
77 359 45 709
Reconciliation of fully diluted weighted
average number of shares in issue (`000)
Weighted average number of shares
in issue (`000) 146 079 145 738
37 281 747 shares issued to Amabubesi on
8 April 2006 (`000) 37 282 8 989
183 361 154 727
SEGMENTAL REPORT
2007
Net Liabili-
Revenue EBITDA profit Assets ties
R`000 R`000 R`000 R`000 R`000
Pinnacle Micro 1 027 495 79 340 53 624 318 148 (233 548)
WorkGroup 586 385 23 469 14 518 239 927 (216 342)
RentNet 26 560 6 234 3 197 12 471 (7 497)
DataNet 75 382 4 918 3 153 48 513 (51 754)
Holdings and
properties 22 446 262 43 092 59 398
1 715 844 114 407 74 754 662 151 (449 743)
2006
Net Liabili-
Revenue EBITDA profit Assets ties
R`000 R`000 R`000 R`000 R`000
Pinnacle Micro 697 438 40 724 28 744 334 207 (302 517)
WorkGroup 353 148 21 226 13 035 206 638 (197 759)
RentNet 10 207 3 278 1 058 9 269 (7 493)
Holdings and
properties - (48 107) (49 048) 40 410 71 502
1 060 793 17 121 (6 211) 590 524 (436 267)
GROUP BALANCE SHEET
as at 30 June 2007
2007 2006
R`000 R`000
Assets
Non-current assets 105 719 93 066
Property, plant and equipment 48 742 44 081
Intangible assets 41 146 40 359
Trust loans 12 633 3 364
Deferred taxation 3 198 5 262
Current assets 556 432 497 458
Inventories 152 988 119 384
Trade and other receivables 315 252 211 884
Cash and cash equivalents 88 192 166 190
Total assets 662 151 590 524
Equity and liabilities
Capital and reserves 217 174 152 765
Share capital and premium 184 337 184 323
Treasury shares - (6 572)
Non-distributable reserves 5 102 8 987
Put option 1 910 1 910
Accumulated profit/(loss) 25 825 (35 883)
Minority shareholders` interest (4 766) 1 492
Non-current liabilities 51 030 46 588
Interest-bearing liabilities 51 030 46 588
Current liabilities 398 713 389 679
Trade and other payables 357 477 336 419
Current portion of interest-bearing
liabilities 4 375 27 805
Warranty provisions 8 713 8 466
Taxation 28 148 16 989
Total equity and liabilities 662 151 590 524
GROUP STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2007
Non-
distri-
Share Share Treasury butable Put
capital premium shares reserves option
R`000 R`000 R`000 R`000 R`000
Balance at
1 July 2005 1 492 124 602 (4 138) 9 729 -
Issue of shares 376 36 117 - - -
Value of put option
offered to
Amabubesi
Investments (Pty)
Limited - (1 910) - - 1 910
Deemed financial
liability - (26 684) - - -
Net profit for the
year as previously
reported - - - - -
BEE transaction
charges - 50 330 - - -
Treasury shares
bought - - (6 398) - -
Treasury shares
issued - - 3 964 - -
Profit on sale of
subsidiary - - - (801) -
Acquisition of outside
shareholders`
portion of non-
distributable reserves - - - 74 -
Dividends declared - - - - -
Reallocation of
shareholder`s loan - - - - -
Movement in foreign
currency translation
reserve - - - (15) -
Restated balance as
at 30 June 2006 1 868 182 455 (6 572) 8 987 1 910
Issue of shares 1 13 - - -
Treasury shares
acquired - - (2 815) - -
Treasury shares
issued - - 9 387 - -
Net profit for
the period - - - - -
Dividends declared - - - - -
Deferred tax on
deemed interest - - - (3 799) -
Movement in foreign
currency translation
reserve - - - (86) -
On acquisition of
DataNet Infrastructure
Group (Pty) Limited - - - - -
Balance at
30 June 2007 1 869 182 468 - 5 102 1 910
Ordinary
Accumulated share- Minority Total
(loss)/profit holders interest equity
R`000 R`000 R`000 R`000
Balance at
1 July 2005 (24 563) 107 122 2 590 109 712
Issue of shares - 36 493 (803) 35 690
Value of put option
offered to
Amabubesi
Investments (Pty)
Limited - - - -
Deemed financial
liability - (26 684) - (26 684)
Net profit for the
year as previously
reported 44 119 44 119 (59) 44 060
BEE transaction
charges (50 330) - - -
Treasury shares
bought - (6 398) - (6 398)
Treasury shares
issued - 3 964 - 3 964
Profit on sale of
subsidiary 801 - - -
Acquisition of outside
shareholders`
portion of non-
distributable reserves - 74 (74) -
Dividends declared (5 910) (5 910) (333) (6 243)
Reallocation of
shareholder`s loan - - 171 171
Movement in foreign
currency translation
reserve - (15) - (15)
Restated balance as
at 30 June 2006 (35 883) 152 765 1 492 154 257
Issue of shares - 14 (107) (93)
Treasury shares
acquired - (2 815) - (2 815)
Treasury shares
issued - 9 387 - 9 387
Net profit for
the period 74 755 74 755 573 75 328
Dividends declared (13 059) (13 059) (97) (13 156)
Deferred tax on
deemed interest - (3 799) - (3 799)
Movement in foreign
currency translation
reserve 12 (74) - (74)
On acquisition of
DataNet Infrastructure
Group (Pty) Limited - - (6 627) (6 627)
Balance at
30 June 2007 25 825 217 174 (4 766) 212 408
SUMMARISED GROUP CASH FLOW STATEMENT
for the year ended 30 June 2007
2007 2006
R`000 R`000
Cash flows from operations
Cash receipts from customers 1 631 996 980 314
Cash paid to employees and suppliers (1 630 983) (873 737)
Cash generated from operations 1 013 106 577
Investment income - 4 907
Finance cost (1 118) (4 619)
Taxation paid (21 438) (4 488)
Cash flows from investing activities
Expenditure to maintain operating capacity (21 543) 102 377
Property, plant and equipment acquired (10 343) (12 119)
Proceeds on the disposal of property,
plant and equipment 458 329
Acquisition of intangibles - (15)
Acquisition of subsidiaries (6 356) (25 238)
Acquisition of outside shareholders`
interest in subsidiaries - (4 819)
(16 241) (41 862)
Cash flows from financing activities
Net increase in long-term liabilities (14 937) 19 210
Share capital and premium raised - 36 262
Treasury shares acquired (12 915) (6 398)
Dividends and share premium paid (12 362) (5 964)
(40 214) 43 110
(Decrease)/increase in cash and
cash equivalents (77 998) 103 625
Cash and cash equivalents at the
beginning of the year 166 190 62 565
Cash and cash equivalents at the
end of the year 88 192 166 190
COMMENTARY
Financial overview
Revenue increased by 62% percent to reach a record R1,72 billion. Pinnacle Micro
continues its role as the mainstay of the Group, with focus on value-added
distribution via its Channel, Retail, Government and Corporate divisions. Both
the Channel and Retail divisions realised significant growth during the year
whilst high value projects were carried forward in the Government division for
completion in the 2008 financial year.
WorkGroup grew by 66% during the year as it continues to diversify horizontally,
through the acquisition and enhanced focus on product sets such as Sun Micro
System, IBM and VM Ware and vertically, through merchandising services offered
to mass retailers.
High growth targets within RentNet have been met as services were expanded to
include high-end audio-visual, conference and translation services, albeit at a
lower operating margin.
DataNet, consolidated with effect from 1 October 2006, contributed acquisitive
growth of 4,4% to Group turnover.
Operating profit was boosted by 74%* to R109 million, exceeding the 6% of
turnover barrier, as operating expenses reduced to 9,4% of turnover (2006:
9,9%*).
Headline earnings per share increased by 68% to 51,6 cents while fully diluted
headline earnings per share increased by 43% to 42,2 cents per share, which now
recognises the full dilutionary impact of shares issued to Amabubesi in April
2006.
Stock-on-hand days reduced to 38,8 days (2006: 42,5 days) in line with Group
focus on working capital management. Debtors increased to R315 million (2006:
R211 million) and the average days sales outstanding increased from 56,5 days
sales outstanding to 58,8 days. Target days sales outstanding remain at 50 days
but concessions were approved on the terms of three high value projects so as to
facilitate the closure of those transactions. All aged debts have been evaluated
for impairment, and if deemed doubtful, provided for. Terms offered by trade
creditors were shortened as value points were pursued, resulting in a net
investment in working capital of R113 million.
Continued focus on improving working capital ratios will release the funds
invested during the past year.
Trust loans were increased as beneficiaries of the Pinnacle Technology Holdings
staff share purchase scheme, under the terms and restrictions of the scheme,
committed to procure 4,35 million Pinnacle shares.
Interest-bearing liabilities
The 37 281 647 Pinnacle Technology Holdings shares issued to a wholly owned
subsidiary of Amabubesi Investments (Pty) Limited are considered to be of a
contingent nature as Pinnacle granted Amabubesi a put option in terms of which
Amabubesi has the right to oblige Pinnacle to repurchase all or some of the
subscription shares, should certain financial targets not be met.
In accordance with International Financial Reporting Standards the value of the
put option offered to Amabubesi is treated as a long-term liability amounting to
R30,3 million (2006: R27,4 million), whereupon interest is charged in accordance
with IAS 39.
R8,6 million relate to the long-term portion of unpaid balances due to Hendev
(Pty) Limited on the acquisition of 35% of Explix Technologies (Pty) Limited.
This loan bears interest at 10% per annum.
R9,3 million relate to loans to outside shareholders acquired with the
acquisition of DataNet.
Future prospects
Over the years, Pinnacle`s business model has evolved from that of a component
distributor, to a value-add distributor, and continues to develop vertically as
it becomes a trusted advisor and solutions provider to its clients and partners.
As a result, Pinnacle`s product range now extends to high-end technology
products, software and services.
Pinnacle`s relationship with Sun Microsystems has been strengthened, the Group
was awarded distribution rights on EMC data storage devices and services and is
driving the growth of VM Ware`s virtualisation solutions in South Africa.
Biometric technologies carry significant promise in corporate, government and
parastatal applications and Pinnacle has set up a dedicated team to develop this
potential.
Pinnacle`s venture into digital security systems has successfully established
itself in a competitive market during the past year. Infrastructure and
resources have been put in place to ensure the 2008 high growth targets are met.
The Retail division is successfully developing existing accounts and continues
to expand its customer base.
The Government division continues to cement its position as a primary supplier
to the education market through innovative turnkey projects that offer reliable,
robust technical solutions in challenging environments.
In summary, the Group will endeavour to improve its account management and
client relationships. Ongoing training and development of staff and customers
will increase the product breadth offered, and with employees who are passionate
and focused on the Group strategy, Pinnacle is hard to beat in the marketplace.
The Group`s performance management, recognition and reward programmes are
aligned to support the execution of its strategic objectives as the Group
enhances its productivity through increased efficiency, effectiveness and
adoption of consistent, quality processes across the business.
Corporate activity
Whilst the primary growth this year has been organic, Pinnacle continues to
embrace an active acquisition strategy and acquired a 50,1% stake in DataNet
Infrastructure Group (Pty) Limited.
DataNet, whilst financially insecure, held a wealth of experience, key
distribution agencies and a relatively good market share in the fibre and copper
cable infrastructure distribution market.
Since the acquisition in October 2006, significant resources have been applied
by the new management team to address potential improvements and the subsequent
recovery and performance are within expectation.
These acquisitions should enhance the Group`s technology offering into the
market, increase operating margins and hence shareholder value.
Accounting policies
In terms of the Listings Requirements of the JSE Limited, the results have been
prepared in accordance with International Financial Reporting Standards
("IFRS"), International Accounting Standards 34 - Interim Financial Reporting,
the Listings Requirements of the JSE Limited ("JSE") and the South African
Companies Act. The accounting policies used in the preparation of the results
for the year ended 30 June 2007 are consistent with those used in the
preparation of the results for the year ended 30 June 2006.
Accounting for Black Economic Empowerment transactions (AC 503)
AC 503 seeks to address the accounting treatment of transactions where equity
was issued at a value less than the fair value of the financial instrument, and
is compulsory for all transactions entered into in financial years commencing
after 1 May 2006.
In accordance with the transitional provisions of AC 503, a once-off, non-cash
flow charge amounting to R50 330 223 and a corresponding increase in equity are
reflected in the 2006 comparative results.
To facilitate comparison and analysis, the 2006 results that are appended with
an asterisk ("*") reflect the financial results as published before the
adjustment required by AC 503.
Audit opinion
BDO Simama Incorporated has audited the financial information set out in this
report and their unqualified audit report is available for inspection at the
registered office of the Company.
Subsequent events
No material events to the understanding of the audited results have occurred in
the period between the period-end date and the date of the audited results.
Distribution to shareholders
The directors have proposed a capital distribution to shareholders of 10 cents
per share for the 2007 financial year, subject to South African Reserve Bank,
JSE Limited and shareholders` approval.
For and on behalf of the Board
CD Biddlecombe AJ Fourie
Chairman Chief Executive Officer
Midrand
21 September 2007
Directors: CD Biddlecombe# (Chairman), AJ Fourie (Chief Executive Officer), H
Coetzee, HG Motau#, PM Moyo#, TAM Tshivhase,
A Tugendhaft#
#Non-executive
Registered office: The Summit, 269 16th Road, Randjespark, Midrand
Transfer Secretaries: Computershare Investor Services 2004 (Pty) Limited, Ground
Floor, 70 Marshall Street, Johannesburg, 2001
Auditors: BDO Simama Incorporated, 13 Wellington Road, Parktown, Johannesburg
2193
Sponsor: Deloitte & Touche Sponsor Services (Pty) Limited
Date: 21/09/2007 07:05:02 Produced by the JSE SENS Department.
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