| Thu 20 Nov 2008, 9:08 | | CVN - ConvergeNet - Audited Group Results For The Year Ended 31 August 2008 And |
|
CVN
CVN
CVN - ConvergeNet - Audited Group Results For The Year Ended 31 August 2008 And
Renewal Of Cautionary Announcement
CONVERGENET HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1998/015580/06)
Share code: CVN & ISIN: ZAE000102067
("ConvergeNet" or "the company")
AUDITED GROUP RESULTS FOR THE YEAR ENDED 31 AUGUST 2008 AND RENEWAL OF
CAUTIONARY ANNOUNCEMENT
Audited Restated
year ended year ended
31 Aug 2008 31 Aug 2007
R`000 R`000
Condensed Consolidated Income
Statement
Revenue 923,989 170,196
Cost of sales (694,902) (136,918)
Gross profit 229,087 33,278
Other income 1,354 324
Operating expenses (123,758) (13,711)
Operating profit 106,683 19,891
Investment income 3,800 1,472
Share of profit of associates 2,610 142
Finance costs (1,116) (61)
Profit before taxation 111,977 21,444
Taxation (30,285) (6,266)
Profit for the year 81,692 15,178
Attributable to:
Equity holders of the parent 42,242 5,672
Minority Interests 39,450 9,506
81,692 15,178
Earnings per share
Headline earnings per ordinary 6.19 2.28
share (cents)
Basic and diluted earnings per 6.16 2.19
ordinary share (cents)
Fully diluted earnings per ordinary 6.12 2.19
share (cents)
Weighted average number of shares 685,855,777 259,469,863
Fully diluted weighted average 690,222,444 259,469,863
number of shares
Calculation of headline earnings
Earnings for the year 42,242 5,672
(Profit) / Loss on disposal of (46) 2
assets
Impairment losses 423 461
Portion of goodwill adjustment (185) (226)
attributable to minorities
Headline earnings 42,434 5,909
Condensed Consolidated Balance Sheet Audited Restated
year ended year ended
31 Aug 31 Aug 2007
2008
R`000 R`000
ASSETS
Non-Current Assets
Property, plant and equipment 22,645 9,694
Goodwill 150,500 82,649
Intangible assets 19,337 17,908
Investments in associates 2,726 142
Deferred taxation 9,176 2,477
204,384 112,870
Current Assets
Inventories 19,337 8,911
Loans to group companies 494 346
Other financial assets 10,121 1,122
Current tax receivable 968 255
Trade and other receivables 200,523 113,096
Cash and cash equivalents 88,672 55,253
320,115 178,983
TOTAL ASSETS 524,499 291,853
EQUITY AND LIABILITIES
Total equity
Shareholders equity 246,330 116,514
Minority interest 64,600 37,916
310,930 154,430
Liabilities
Non-Current liabilities
Loans from group companies 1,512
-
Other financial liabilities 7,351 1,448
Finance lease obligation 1,264 1 706
Operating lease liability 72 62
Deferred taxation 6,087 5,188
16,286 8,404
Current liabilities
Loans from group companies 3,345 11,595
Other financial liabilities 3,062 1,460
Current tax payable 27,661 20,791
Finance lease obligation 1,044 689
Provisions 8,485 1,868
Trade and other payables 153,585 91,901
Bank overdraft 101 715
197,283 129,019
Total Liabilities 213,569 135,717
TOTAL EQUITY AND LIABILITIES 524,499 291,853
Condensed Consolidated Cash Flow Audited Restated
Statement year ended year ended
31 Aug 31 Aug 2007
2008
R`000 R`000
Operating activities
Cash generated by / (used in) 76,419 (4,702)
operations
Interest income 3,767 1,472
Finance costs (1,018) (61)
Tax paid (35,301) (6,922)
Dividends received 33 -
Net cash (used in) from operating 43,900 (10,213)
activities
Net cash (used in) from investing (8,855) 59,794
activities
Net cash from financing activities (1,012) 3,459
Net increase (decrease) in cash and 34,033 53,040
cash equivalents
Cash at the beginning of the year 54,538 1,498
Total cash at end of the year 88,571 54,538
Condensed Consolidated Statement of
Changes in Equity
Balance beginning of the year 154,430 797
Net profit for the year 81,692 15,178
Shares issued for cash 2,060 2,368
Issue of treasury shares in terms 2,795 -
of forfeitable share plan
Acquisition of subsidiaries 75,843 138,747
Transactions with minorities (1,049) -
Expenses recognised directly in (502) (1,080)
equity
Revaluation reserve 405 -
Dividends by subsidiaries to (4,744) (1,580)
minorities
Balance at end of year 310,930 154,430
Condensed Consolidated Segmental
Information
Support Hardware Infrastructure Telecoms Corporate Total
Services and Technologies and Other
Software
Products
R`000 R`000 R`000 R`000 R`000 R`000
Revenue 136,188 302,698 482,473 34,138 21,560 977,057
Profit from 23,868 29,482 47,111 11,501 (5,279) 106,683
operations
Investment 577 1,080 1,965 223 (45) 3,800
revenues
Share of - (25) - - 2,635 2,610
profits of
associates
Finance (319) (518) (185) (353) 259
costs (1,116)
Profit 24,126 30,019 48,891 11,371 (2,430) 111,977
(loss)
before tax
Income tax (7,274) (8,957) (13,725) (3,757) 3,428
(expense) (30,285
benefit )
Profit 16,852 21,062 35,166 7,614 998 81,692
(loss) for
the year
Other
information
Segment 55,988 96,690 176,039 28,964 166,818 524,499
assets
Segment 4,611 882 2,447 8,024 75,604 91,568
assets
acquired
during the
period
Segment 28,513 64,177 105,704 23,773 (8,598) 213,569
liabilities
Commentary
1. Statement of compliance
The condensed consolidated financial information has been prepared in accordance
with IAS 34 - Interim financial reporting and is based on the audited financial
statements of the Group for the year ended 31 August 2008, which have been
prepared in accordance with International Financial Reporting Standards
("IFRS"), the Listing Requirements of the JSE, and the Companies Act of South
Africa.
2. Accounting policies
The audited results for the year ended 31 August 2008 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, with the exception of the adoption of IFRS 7, Financial
Instruments: Disclosures, and the consequential amendments to IAS 1:
Presentation of Financial Statements and the revaluation of Land and Buildings.
3. Independent audit by the auditors
The consolidated financial statements for the year have been audited by ACT
Auditi Solutions Inc. and their unqualified audit report as well as their
unqualified audit report for this set of condensed consolidated financial
results is available for inspection at the registered office of the company.
4. Change in Board of Directors
During the year under review Mr M D van Rooyen resigned as a non-executive
director and Ms M J Krastanov was appointed as a non-executive director.
5. Corporate Activities
5.1 Acquisition of Future Cell
ConvergeNet has acquired 74% of Future Cell (Proprietary) Limited ("Future
Cell") effective 1 January 2008 for a purchase consideration of R68 376 000
which has been settled through the issue of 78 593 103 shares in ConvergeNet at
87 cents per share. Future Cell operates in the pre-paid cellular market.
The acquired company contributed revenue of R 28.450 million and profit after
tax of R 8.602 million for the period 1 January 2008 to 31 August 2008.
If the acquisition had taken place on 1 September 2007, the acquired company
would have contributed revenue of R 43.787 million and a profit after tax of R
10.431 million for the period 1 September 2007 to 31 August 2008.
Goodwill of R 62.794 million arose on this acquisition as a result of the
potential value that management believed the business enjoyed.
5.2 Acquisition of X-Dsl
ConvergeNet also acquired 51% of X-DSL Networking Solutions (Proprietary)
Limited ("X-DSL") effective 1 January 2008 for a purchase consideration of R5
000 000, which was settled through the issue of 5 747 126 shares in ConvergeNet
at 87 cents per share. X-DSL is an ISP and provides networking solutions to
SMME`s.
The acquired company contributed revenue of R 5.688 million and a loss after tax
of R 0.836 million for the period 1 January 2008 to 31 August 2008.
If the acquisition had taken place on 1 September 2007, the acquired company
would have contributed revenue of R 8.324 million and a loss after tax of R
0.847 million for the period 1 September 2007 to 31 August 2008.
Goodwill of R 4.665 million arose on this acquisition as a result of the
potential value that management believed the business will add to the Group
5.3 Acquisition of Interface Network Technology
On 1 June 2008, Sizwe Infrastructure Technology (Pty) Ltd acquired a 51%
interest in Interface Network Technology for a purchase consideration of R1.7
million which has been settled in cash.
The acquired company contributed revenue of R 7.734 million and a profit after
tax of R 0.587 million for the period 1 June 2008 to 31 August 2008.
If the acquisition had taken place on 1 September 2007, the acquired company
would have contributed revenue of R 23.822 million and a profit after tax of R
0.725 million for the period 1 September 2007 to 31 August 2008.
Goodwill of R 1.578 million arose on this acquisition as a result of the
potential value that management believed the business enjoyed.
Aggregate of the fair value of
assets and liabilities acquired
Fair Acquiree`s
values at carrying
date of amount at
acquisition date of
acquisition
R`000 R`000
Property, plant and equipment 6,624 6,624
Intangible assets 5,773 -
Deferred tax assets / (3,178) (1,561)
liabilities
Inventories 1,177 1,177
Trade and other receivables 24,572 24,572
Trade and other payables (19,251) (19,251)
Tax assets / liabilities (2,162) (2,162)
Other financial liabilities (7,020) (7,020)
Cash 1,909 1,909
Minority interest (2,405) (1,387)
Fair value of assets and 6,039 2,901
liabilities acquired
5.4 Transactions with minorities
In addition to the acquisition of above subsidiaries, ConvergeNet has acquired
an additional 19 % interest on 1 September 2007 in Structured Connectivity
Solutions (Pty) Ltd for a consideration of R13,3 million, which was settled
through the issue of 15,818,024 shares in ConvergeNet at 84 cents per share.
ConvergeNet has also acquired an additional 5.2% interest in Sizwe Africa IT
Group (Pty) Ltd ("Sizwe") for a purchase consideration of R26m through the issue
of new shares by Sizwe. The purchase consideration was settled through the issue
of 22 222 222 ConvergeNet shares at 108 cents per share. Sizwe has in turn
utilised the proceeds from this issue to acquire the 30% minority interest in
Sizwe Infrastructure Technology (Pty) Ltd.
6. Operating results
The results reflect the Group`s first set of annual results for a full year
since the change in control in March 2007 and the various acquisitions that were
approved by shareholders since then. A comparison to the prior year`s results is
therefore not meaningful as the effective dates of these acquisitions varied and
none of them were for a full reporting period.
Included in the circular sent to shareholders in August 2007, was a profit
forecast for the year ending 31 August 2008. A comparison between actual results
for the period and the profit forecast is set out below:
Actual Profit
results forecast
R`000 R`000
Revenue 923,989 600,229
Operating profit 106,683 92,138
Investment income 3,800 -
Share of profit of associates 2,610 799
Finance costs (1,116) (456)
Profit before taxation 111,977 92,481
Taxation (30,285) (27,126)
Profit for the year 81,692 65,355
Headline earnings per ordinary 6.19 4.23
share (cents)
Basic and diluted earnings per 6.16 4.23
ordinary share (cents)
The higher than expected revenue, profit for the year and earnings per share
were primarily as a result of the acquisition of Future Cell, new customer wins
by Telesto Communications and increased product sales by the Sizwe group, albeit
that the latter were at lower margins.
The Group experienced a strong demand for its products and offerings and it has
achieved growth in both market and customer share during the year under review.
The Sizwe Africa IT Group, Structured Connectivity Solutions and Telesto
Communications have in particular performed ahead of expectations.
The group generated R 43.900 million of cash from its operating activities
during the year and has very little interest bearing financing from external
sources.
7. Dividend
No dividend has been proposed for the year.
8. Comparative figures
Certain comparative figures in the cash flow statement have been reclassified in
order to treat the issuing of shares for business acquisitions as a non cash
flow item. This has resulted in a reclassification between `Net cash from
financing activities` and `Net cash from investing activities`.
The initial accounting for business combinations in the previous financial
period have only been completed in the current financial period as the
independent valuations of Intangible assets relating to business combinations in
the previous period were only received subsequent to the date the previous
period`s financial statements were approved.
As a result hereof, and in terms of IFRS 3, the following changes were made to
the group`s reported results for the comparative period:
Group
R`000
Balance sheet
Increase in intangible assets 19,028
Decrease in goodwill (8,200)
Increase in minority interests (4,980)
Increase in deferred tax (5,189)
Income statement
Additional amortisation of intangible 807
assets, net of deferred tax
Minority interests in additional (330)
amortisation
9. Post-balance sheet events
The company has signed agreements with NW Andrews and JE Andrews on 20 October
2008 to acquire 74% of the issued share capital of Chrystalpine Investments 9
(Pty) Ltd whose only asset is a 100% interest in Andrews Kit (Pty) Ltd trading
as Contract Kitting, subject to conditions precedent.
The purchase price payable will be R 142.925 million and is to be discharged by
the company through the issue of 132 338 037 new ConvergeNet shares at 108
cents per share as vendor consideration shares. The company has sourced an
appropriate BEE partner to acquire these shares.
The purchase price was based on an estimated profit after tax of R 26 million
rand for the year ended 31 August 2008. The agreement provides for the
calculation of an adjusted purchase price.
Contract Kitting operates as a supplier of Infrastructure Technology products
and services and all related activities. Solutions are provided through
interaction with network providers in ascertaining installation or upgrade
needs and providing the required equipment in kit form. Contract Kitting has
also developed proprietary patented technology in the area of Base Station
Power Management solutions and Emergency Cooling that is key to its
telecommunications solutions.
The pro-forma financial effects of this acquisition are not available as at the
date of this report.
10. Prospects
The overall expectation is for continued growth in revenue and earnings. The
Group is still experiencing strong demand for its products, solutions and
services in particularly the Government market segment. ConvergeNet expects
further strategic progress in respect of supplier support and certifications,
as well as an expanded product and solution offering. The pending completion of
the Contract Kitting acquisition will enable substantial market share growth in
the Telecommunications market segment. ConvergeNet is adopting a more
conservative approach to our international business development programme as a
result of the changing macroeconomic landscape.
11. Conclusion
ConvergeNet thanks all our stakeholders. We are grateful for the continued
commitment and support of our customers, employees, suppliers and shareholders.
12. Renewal of cautionary
Shareholders are referred to the cautionary announcement dated 22 October 2008
in which shareholders were advised that they should exercise caution when
dealing in the company`s securities until the pro forma financial effects
of the Contract Kitting acquisition (see note 9 above) were made. As the pro
forma financial effects of the acquisition is not yet available, shareholders
are advised to continue exercise caution when dealing in the company`s
securities until the financial effects are made known.
For and on behalf of the board
SLL Peteni PWJ Bouwer DF Bisschoff
Chairman Chief Executive
Officer Chief
Financial
Officer
Pretoria
19 November 2008
Corporate information:
www.convergenet.co.za
Directors: SLL Peteni *(Chairman), PWJ Bouwer (CEO), DF Bisschoff (CFO), D
Braine, G Edwards, B Kekana, NR Macdonald*, MJ Krastanov*, T Modise*, MI
Scott*, S Swana*, H van Dyk (* Non-Executive)
Company secretary and registered Office: Arcay Client Support (Pty) Ltd, Arcay
House II, Number 3 Anerley Road, Parktown, 2193
Business Address: Unit 5, Tijger Valley Office Park, Silver Lakes Road, Tijger
Valley, 0181
Postal address: PO Box 73174, Lynnwood Ridge, 0040
Transfer Secretaries: Computershare Investor Services (Pty) Ltd, 70 Marshall
Street, Johannesburg, 2001
Sponsor: Arcay Moela Sponsors (Pty) Ltd, Arcay House II, Number 3 Anerley Road,
Parktown, 2193
E-Mail: info@convergenet.co.za
Date: 20/11/2008 09:08:01 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.
