| Fri 20 Nov 2009, 9:59 | | CVN - ConvergeNet Holdings - Audited financial results for the year ended 31 |
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CVN
CVN
CVN - ConvergeNet Holdings - Audited financial results for the year ended 31
August 2009
ConvergeNet Holdings Limited and its subsidiaries
(Registration number 1998/015580/06)
JSE code: CVN & ISIN: ZA000102067
Audited financial results for the year ended 31 August 2009
Condensed consolidated income statement
Audited Audited
year ended year ended
R`000 31 Aug 2009 31 Aug 2008
Revenue 1 025 266 923 989
Cost of sales (754 422) (684 046)
Gross profit 270 844 239 943
Other income 4 349 1 354
Operating expenses (197 937) (134 614)
Operating profit 77 256 106 683
Investment income 8 308 3 800
Share of profit of associates 1 043 2 610
Finance costs (3 528) (1 116)
Profit before taxation 83 079 111 977
Taxation (20 435) (30 285)
Profit for the year 62 644 81 692
Attributable to:
Equity holders of the parent 41 443 42 242
Minority interests 21 201 39 450
62 644 81 692
Earnings per share
Basic earnings per ordinary share (cents) 5.0 6.2
Fully diluted earnings per ordinary share (cents) 4.9 6.1
Weighted average number of shares 825 692 929 685 855 777
Fully diluted weighted average
number of shares 842 111 976 690 222 444
Headline earnings per share
Headline earnings per ordinary share (cents) 4.9 6.2
Fully diluted headline earnings per
ordinary share (cents) 4.8 6.1
Reconciliation between basic and headline earnings
Basic earnings attributable to equity holders
of parent 41 443 42 242
Loss/(profit) on disposal of assets 51 (46)
(Profit) on disposal of assets of associates (34) -
(Profit) on disposal of subsidiaries
and associates (2 257) -
Impairment losses - 423
Portion of adjustments attributable
to minorities 884 (185)
Headline earnings 40 087 42 434
Condensed consolidated balance sheet
Audited Audited
as at as at
31 Aug 2009 31 Aug 2008
R`000
ASSETS
Non-current assets
Property, plant and equipment 27 760 22 645
Goodwill 247 651 150 500
Intangible assets 34 747 19 337
Investments in associates 3 653 2 726
Deferred taxation 15 216 9 176
329 027 204 384
Current assets
Inventories 50 287 19 337
Loans to group companies 6 177 494
Other financial assets 32 891 10 121
Current tax receivable 1 600 968
Trade and other receivables 254 711 200 523
Cash and cash equivalents 103 717 88 672
449 383 320 115
TOTAL ASSETS 778 410 524 499
EQUITY AND LIABILITIES
Total equity
Shareholders` equity 424 436 246 330
Minority interest 85 817 64 600
510 253 310 930
Liabilities
Non-current liabilities
Vendors for acquisition 1 707 1 512
Other financial liabilities 7 140 7 351
Finance lease obligation 1 299 1 264
Operating lease liability - 72
Deferred taxation 10 393 6 087
20 539 16 286
Current liabilities
Vendors for acquisition 4 815 -
Loans from group companies - 3 345
Other financial liabilities 5 104 3 062
Current tax payable 16 910 27 661
Finance lease obligation 1 196 1 044
Provisions 4 633 8 485
Trade and other payables 200 254 153 585
Bank overdraft 14 706 101
247 618 197 283
Total liabilities 268 157 213 569
TOTAL EQUITY AND LIABILITIES 778 410 524 499
Condensed consolidated cash flow statement
Audited Audited
year ended year ended
31 Aug 2009 31 Aug 2008
R`000
Operating activities
Cash generated in operations 110 319 76 419
Interest income 6 592 3 767
Finance costs (3 333) (1 018)
Tax paid (53 826) (35 301)
Dividends received 1 716 33
Net cash from operating activities 61 468 43 900
Net cash used in investing activities (180 180) (8 855)
Net cash from/(utilised in) financing
activities 119 152 (1 012)
Net increase in cash and cash equivalents 440 34 033
Cash at the beginning of the year 88 571 54 538
Total cash at end of the year 89 011 88 571
Condensed consolidated statement of changes in equity
Audited Audited
year ended year ended
31 Aug 2009 31 Aug 2008
R`000
Balance at beginning of the year 310 930 154 430
Net profit for the year 62 644 81 692
Shares issued for cash - 2 060
Issue of treasury shares in terms of
forfeitable share plan 7 252 2 795
Shares forfeited in terms of
forfeitable share plan 640 -
Acquisition of subsidiaries 162 477 75 843
Transactions with minorities (14 718) (1 049)
Expenses recognised directly in equity (945) (502)
Revaluation reserve 20 405
Own shares acquired by subsidiaries,
held as treasury shares (3 280) -
Dividends by subsidiaries to minorities (14 767) (4 744)
Balance at end of the year 510 253 310 930
Condensed segmental information
Hardware and
Support software Infrastructure Corporate
services products technologies Telecom and other Total
R`000
Revenue
151 492 221 813 577 113 53 147 21 701 1 025 266
Profit from operations
9 690 12 906 33 084 22 206 (630) 77 256
Investment income
357 3 273 4 940 649 (2 627) 6 592
Dividends received
- - - - 1 716 1 716
Share of profits of associates
- - - - 1 043 1 043
Finance costs
(2 597) (2 740) (1 621) (589) 4 019 (3 528)
Profit before tax
7 450 13 439 36 403 22 266 3 521 83 079
Income tax (expense)/benefit
(2 101) (3 115) (14 581) (6 714) 6 076 (20 435)
Profit for the year
5 349 10 324 21 822 15 552 9 597 62 644
Other information
Segment assets
112 918 139 563 336 427 28 386 161 116 778 410
Segment assets acquired during the period
3 731 195 3 509 805 124 120 132 360
Segment liabilities
80 270 108 206 208 122 12 429 (140 870) 268 157
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 2009, which have been
prepared in accordance with International Financial Reporting Standards
("IFRS"), the Listings Requirements of the JSE Ltd ("JSE"), and the Companies
Act of South Africa.
2. Accounting policies
The audited results for the year ended 31 August 2009 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.
3. Independent audit by the auditors
The consolidated financial statements for the year have been audited by ACT
Audit Solutions Inc. and their unqualified audit report, as well as their
unqualified audit report for this set of condensed consolidated financial
results are available for inspection at the registered office of the company.
4. Change in board of directors
Mr Dumisani Dumekhaya Tabata was appointed as non-executive director with effect
from 30 January 2009, which appointment was pursuant to Green Tree Investments
(Pty) Ltd acquiring a shareholding in ConvergeNet through the Contract Kitting
vendor placement.
5. Operating results
5.1 Income statement
Performance was satisfactory in a difficult market. Apart from the economic
pressure and difficult trading conditions there have been delays in the
publication and awards of the new SITA term contracts. Business in the
government segment was also slower than expected due in part to the March
general election and the widely expected changes in the administration.
Additionally, corporate customers have delayed or cancelled technology
investments in several instances. Therefore trading conditions remained tight
and the increased competition caused some margin pressure, whilst customers are
increasingly price sensitive.
In spite of these conditions ConvergeNet experienced a growth in revenue for the
period of 11%. The revenue for the last six months declined against the first
six months, which is against the normal trend.
ConvergeNet`s attributable earnings and attributable headline earnings are 2%
and 5% respectively below that of the previous year. This is mainly attributed
to the group`s increased investment in resources and skills whilst the
concomitant revenues did not materialise in the period. These investments were
required in order to extend ConvergeNet`s offerings and enhance its competitive
position. We are confident that these investments will yield results. Due to a
higher number of shares in issue, mainly as a result of the Chrystalpine
Investments acquisition, the earnings per share and headline earnings per share
are 19% and 22% below that of the previous year respectively.
5.2 Balance sheet
The increase in goodwill, inventories and trade and other receivables were
mainly as a result of the Contract Kitting acquisition.
5.3 Cash flow
The group generated R61.468 million (2008: R43.900 million) of cash from its
operating activities during the year and the group has very little interest-
bearing financing from external sources.
6. Corporate activities
6.1 Acquisition of Chrystalpine Investments 9 (Pty) Ltd
ConvergeNet has acquired 74% of Chrystalpine Investments 9 (Pty) Ltd, whose only
asset is 100% interest in Andrews Kit (Pty) Ltd trading as Contract Kitting
("CK") effective 1 January 2009 for a purchase consideration of R147.104
million, of which R142.289 million has been settled through the issue of 132 338
037 shares in ConvergeNet at 108 cents per share. The remaining R4.815 million
will be settled on or before 26 November through the issue of additional shares
in ConvergeNet at 50 cents per share. CK operates as a supplier of
infrastructure technology products and services and all related activities to
all the major telecommunications businesses in South Africa.
The acquired company contributed revenue of R134.032 million and profit after
tax of R15.358 million for the period 1 January 2009 to 31 August 2009.
If the acquisition had taken place on 1 September 2008, the acquired company
would have contributed revenue of R206.485 million and a profit after tax of
R25.298 million for the period 1 September 2008 to 31 August 2009.
Goodwill of R89.268 million arose on this acquisition as a result of the
potential that management believed the business has as well as the benefits that
the group will bring to this business.
6.2 Acquisition of Tswelopele Technological Solutions (Pty) Ltd
Sizwe Africa IT Group (Pty) Ltd acquired 74% of Tswelopele Technological
Solutions (Pty) Limited ("Tswelopele") effective 1 December 2008 for a nominal
purchase consideration. Tswelopele provides access control and ticketing systems
and solutions and the company has secured certain of the new stadium contracts.
The acquired company contributed revenue of R23.588 million and a profit after
tax of R2.787 million for the period 1 January 2009 to 31 August 2009.
If the acquisition had taken place on 1 September 2008, the acquired company
would have contributed the same revenue of R23.588 million and a profit after
tax of R2.787 million for the period 1 September 2008 to 31 August 2009 as the
company only started trading in January 2009.
Goodwill of R2.299 million arose on this acquisition as a result of the
potential that management believed the business has, as well as the benefits
that the group will bring to this business.
6.3 Acquisition of Mmele Consulting (Pty) Ltd
On 1 September 2008, Sizwe Africa IT Group (Pty) Ltd acquired a 65% interest in
Mmele Consulting (Pty) Ltd for a nominal purchase consideration.
The name of the company was subsequently changed to ConvergeNet Networks and it
provides primarily network solutions.
The acquired company contributed revenue of R49.421 million and a profit after
tax of R3.256 million for the period 1 September 2008 to 31 August 2009.
The acquisition was a bargain purchase and a gain of R0.034 million resulting
from the bargain purchase has been recognised in profit and loss.
6.4 Acquisition of the assets and liabilities of Tabana Networks (Pty) Ltd.
On 1 March 2009, ConvergeNet Networks (Pty) Ltd acquired all the assets and
liabilities of Tabana Networks (Pty) Ltd for a cash consideration of R5.165
million. Goodwill of R4.792 million arose on this acquisition as a result of the
potential that management believed the business has as well as the benefits that
the group will bring to this business.
Aggregate of the fair value of assets and liabilities acquired
Fair values at date Acquiree`s carrying
of acquisition amount at date of
acquisition
R`000
Property, plant and equipment 3 624 3 624
Intangible assets 23 983 852
Deferred tax assets/liabilities (5 743) 733
Inventories 30 498 30 498
Trade and other receivables 37 411 37 411
Trade and other payables (16 119) (16 119)
Tax assets/liabilities (12 234) (12 234)
Other financial liabilities (6 570) (6 570)
Cash 20 706 20 706
Minority interest (19 552) (15 222)
Fair value of assets and
Liabilities acquired 56 004 43 679
6.5 Transactions with minorities
In addition to the acquisition of above subsidiaries, ConvergeNet has acquired
the remaining 26% interest in Telesto Communications (Pty) Ltd on 1 March 2009
for a consideration of R18.732 million, which was settled through the issue of
27 641 000 shares in ConvergeNet at 67.77 cents per share.
ConvergeNet has also acquired an additional 3.8% interest in Sizwe Africa IT
Group (Pty) Ltd ("Sizwe") for a purchase consideration of R15 million. The
purchase consideration was settled in cash. ConvergeNet now has a 60% interest
in Sizwe.
6.6 Sale of businesses
On 1 September 2008, Sizwe Africa IT Group (Pty) Ltd sold its 27% interest in
Sizwe Asset Finance (Pty) Ltd and on 1 January 2009, sold its 51% interest in
Columbus Technologies (Pty) Limited.
Sizwe Business Networking (Pty) Ltd has sold its 51% interest in Sizwe Human
Resource Solutions (Pty) Ltd on 1 March 2009 for a nominal amount.
7. Dividend
The declaration of cash dividends will continue to be considered by the board in
conjunction with an evaluation of current and future funding requirements and
will be adjusted to levels considered appropriate at the time of declaration.
ConvergeNet`s continued commitment to optimal cash utilisation will mean that
cash generated by the operations will be used to fund growth. In line with the
current dividend policy, no dividend has been proposed for the period under
review.
8. Industry and group outlook
The group expects trading conditions to remain tough for the next six to nine
months and it is anticipated that the announced changes in government spending
could impact on earnings in the immediate term.
9. Post balance sheet events
There have been no significant events subsequent to year-end up until the date
of this report that requires adjustment or disclosure.
10. Conclusion
ConvergeNet thanks all our stakeholders. We are grateful for the continued
commitment and support of our customers, employees, suppliers and shareholders.
For and on behalf of the board
SLL Peteni PWJ Bouwer
Chairman Chief executive officer
Pretoria
20 November 2009
Corporate information:
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*, DD Tabata*, 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.
email: info@convergenet.co.za
www.convergenet.co.za
Date: 20/11/2009 09:59:23 Produced by the JSE SENS Department.
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