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PNC
PNC
PNC - Pinnacle Technology - Unaudited interim results for the six months ended
31 December 2009
PINNACLE TECHNOLOGY HOLDINGS LIMITED
(Registration number 1986/000334/06)
Share code: PNC
ISIN: ZAE000022570
("Pinnacle" or "the Group")
www.pinnacle.co.za
Revenue increased by 8.2% to R1.464 billion
EBITDA increased by 26.7% to R89.1 million
Headline earnings increased by 37% to R62 million
Cash on hand R54 million
UNAUDITED INTERIM RESULTS for the six months ended 31 December 2009
GROUP INCOME STATEMENT
6 months 6 months 12 months
ended ended ended
31 Dec 31 Dec 30 Jun
2009 2008 2009
Unaudited Unaudited Audited
R`000 R`000 R`000
Revenue 1 464 836 1 354 053 2 833 716
Cost of sales (1 242 618) (1 139 087) (2 395 040)
Gross profit 222 218 214 966 438 676
Operating expenses (133 076) (144 617) (271 291)
Selling and distribution (12 464) (5 175) (9 712)
Employee expenses (104 505) (92 678) (193 726)
Administration (21 047) (20 965) (42 904)
Profit/(loss) on foreign
exchange 4 940 (25 799) (24 949)
EBITDA 89 142 70 349 167 385
Depreciation (3 917) (4 095) (8 305)
Impairment of intangible assets (10 791) (5) -
Amortisation (85) (248) (439)
Operating profit before
interest 74 349 66 001 158 641
Investment income 5 089 3 758 7 428
Finance costs (17) (6 323) (12 056)
Net profit before taxation 79 421 63 436 154 013
Taxation (24 455) (17 770) (43 891)
Net profit for the period 54 966 45 666 110 122
Attributable to:
Ordinary shareholders 53 828 44 269 105 454
Non-controlling shareholders 1 138 1 397 4 668
Returns % % %
Gross profit 15.2 15.9 15.5
EBITDA 6.1 5.2 5.9
Net profit 3.8 3.4 3.7
Reconciliation of headline earnings
Net profit attributable to
ordinary shareholders 53 828 44 269 105 454
Add back:
Impairment of intangibles 8 589 4 -
Profit/(loss) on sale of assets,
after tax (49) - (23)
Headline earnings - normal 62 368 44 273 105 431
Deemed finance charges - 1 232 2 528
Headline earnings
- fully diluted 62 368 45 505 107 959
Shares in issue (`000)
Weighted average 181 837 145 498 145 382
Fully diluted 181 837 182 779 182 664
Performance per share
Earnings per share (cents)
- Normal 29.6 30.4 72.5
Headline earnings per
share (cents)
- Normal 34.3 30.4 72.5
- Fully diluted 34.3 24.9 59.1
GROUP STATEMENT OF COMPREHENSIVE INCOME
6 months 6 months 12 months
ended ended ended
31 Dec 31 Dec 30 Jun
2009 2008 2009
Unaudited Unaudited Audited
R`000 R`000 R`000
Net profit for the period 54 966 45 666 110 122
Other comprehensive income
(net of tax)
Reversal of BEE charges - - 50 330
Revaluation of property, plant
and equipment - - 20 594
Foreign currency translation
Reserve (162) 461 242
Deferred losses on foreign
exchange hedges 884 - (884)
Total comprehensive income for
the period 55 688 46 127 180 404
Attributable to:
Ordinary shareholders 54 550 44 730 175 736
Non-controlling shareholders 1 138 1 397 4 668
GROUP STATEMENT OF CHANGES IN EQUITY
6 months 6 months 12 months
ended ended ended
31 Dec 31 Dec 30 Jun
2009 2008 2009
Unaudited Unaudited Audited
R`000 R`000 R`000
Opening balance 425 367 281 682 281 682
Comprehensive income for
the period 55 688 46 127 180 404
Treasury shares bought (581) (501) (2 158)
Reversal of BEE charges - - (50 330)
Capitalisation of Amabubesi`s
deemed financial liability - - 37 742
Dividends paid (21 835) (21 899) (21 973)
Closing balance 458 639 305 409 425 367
Attributable to:
Ordinary shareholders 456 161 307 329 424 016
Non-controlling shareholders 2 478 (1 920) 1 351
GROUP STATEMENT OF FINANCIAL POSITION
31 Dec 31 Dec 30 Jun
2009 2008 2009
Unaudited Unaudited Audited
R`000 R`000 R`000
ASSETS
Non-current assets 147 276 127 900 159 479
Property, plant and equipment 85 603 58 702 86 960
Intangible assets 43 489 54 396 54 210
Trust loans 6 724 11 050 10 536
Deferred taxation 11 460 3 752 7 773
Current assets 822 262 846 534 856 248
Inventories 293 428 298 123 292 910
Trade and other receivables 474 533 548 882 399 685
Cash and cash equivalents 54 301 (471) 163 653
Total assets 969 538 974 434 1 015 727
EQUITY AND LIABILITIES
Total equity 458 639 305 409 425 367
Attributable to shareholders 456 161 307 329 424 016
Share capital and premium 143 983 167 629 143 983
Treasury shares (21 186) (18 948) (20 605)
Non-distributable reserves 31 481 7 563 30 780
Accumulated profit 301 883 151 085 269 858
Non-controlling shareholders 2 478 (1 920) 1 351
Non-current liabilities 24 010 50 016 24 452
Interest-bearing liabilities 12 775 50 016 13 777
Deferred taxation 11 235 - 10 675
Current liabilities 486 889 619 009 565 908
Trade and other payables 463 704 596 553 539 541
Foreign exchange contracts 6 640 - 9 993
Current portion of interest-
bearing liabilities 2 160 10 902 2 417
Warranty provisions 7 899 9 421 9 674
Taxation 6 486 2 133 4 283
Total equity and liabilities 969 538 974 434 1 015 727
Valuation per fully diluted share
Net asset value per share (cents) 251.1 168.2 233.2
Net tangible asset value
per share (cents) 227.2 138.4 203.3
Fully diluted number of ordinary
shares in issue at the end of
the period (`000) 181 660 182 705 181 860
Working capital management
Inventory days 43.2 47.9 44.6
Debtors days 52.0 65.1 45.2
Creditors days 59.9 84.1 72.1
Liquidity and solvency
Debt:equity ratio (%) 5.24 16.38 5.75
Current asset ratio 1.69 1.37 1.51
Acid test ratio 1.09 0.89 1.00
SEGMENTAL REPORT
6 months 6 months 12 months
ended ended ended
31 Dec 31 Dec 30 Jun
2009 2008 2009
Unaudited Unaudited Audited
R`000 R`000 R`000
Revenue
Pinnacle Africa 815 106 767 326 1 619 099
WorkGroup 558 802 487 915 1 023 895
RentNet 3 373 15 543 23 294
DataNet 80 206 83 269 167 397
Infrasol 7 277 - -
Holdings and properties 72 - 31
Total Group 1 464 836 1 354 053 2 833 716
EBITDA
Pinnacle Africa 51 691 22 333 88 908
WorkGroup 34 572 36 313 57 262
RentNet (501) 4 958 6 374
DataNet 2 385 5 077 10 367
Infrasol (1 306) - -
Holdings and properties 2 301 1 668 4 474
Total Group 89 142 70 349 167 385
Assets
Pinnacle Africa 490 637 502 354 481 487
WorkGroup 318 071 341 169 348 756
RentNet 7 571 16 701 15 055
DataNet 44 975 43 362 54 129
Infrasol 2 017 - -
Holdings and properties 106 267 70 848 116 300
Total Group 969 538 974 434 1 015 727
Liabilities
Pinnacle Africa (281 145) (372 785) (310 214)
WorkGroup (231 662) (276 369) (269 044)
RentNet 375 (7 058) (4 872)
DataNet (37 361) (40 294) (48 184)
Infrasol (3 035) - -
Holdings and properties 41 929 27 481 41 954
Total Group (510 899) (669 025) (590 360)
ABRIDGED GROUP STATEMENT OF CASH FLOWS
6 months 6 months 12 months
ended ended ended
31 Dec 31 Dec 30 Jun
2009 2008 2009
Unaudited Unaudited Audited
R`000 R`000 R`000
Cash and cash equivalents at
the beginning of the period 163 653 77 199 77 199
Cash from operations 93 707 67 666 165 355
Cash utilised in working
Capital (155 019) (89 774) 16 908
Taxation paid (25 807) (28 600) (54 723)
Distribution to shareholders (21 835) (21 972) (21 970)
Cash utilised in investing
Activities (2 647) (7 866) (10 048)
Increase in third party
Liabilities 2 831 2 876 (7 411)
Treasury shares acquired (582) - (1 657)
Cash and cash equivalents at
the end of the period 54 301 (471) 163 653
COMMENTS
Introduction
The Pinnacle Technology Holdings Group is a diversified Information and
Communication Technology distribution group, active in all areas of ICT
hardware, software and services.
The Group offers a world class selection of international branded products
including Apacer, CA, Canon, Dell, Hewlett-Packard, IBM, Intel, LG, Logitech,
McAfee, Microsoft, Modrac, Novell, Samsung, Sony and VMWare, along with our own
Proline range of ICT equipment.
Products and service sales are realised through individual focused business
units, each with their own area of expertise.
Results of operations
The local and international economies have shown signs of recovery during the
past six months, albeit at a measured pace. South Africa enjoyed the benefit of
a stable and stronger exchange rate, stable fuel prices and reduced interest
charges. Discretionary spending however remains guarded and the impact was felt
in the retail, construction and entertainment industries. Customers` cash and
credit constraints have eased slightly, but continue to influence day-to-day
operations in all business units.
Pinnacle Africa
The Pinnacle Micro business unit was rebranded as Pinnacle Africa to accurately
represent the focus and geographical footprint of the business unit. Revenue
increased from R767 million to R815 million, and EBITDA increased by 131% to
R51.7 million, as foreign exchange management realised a profit of R2.1 million
as opposed to the corresponding loss of R29.9 million included in the
comparative results.
Retail delivered better than expected results based on innovative festive season
packages. The Channel business units reported strong revenue growth and
consistent business volumes, and Government sales were ahead of budget. DD1, a
new business unit reported in the 2009 annual financial statements, has been
merged with Pinnacle Africa to enhance customer focus.
WorkGroup
WorkGroup continues to play a dominant role in the distribution of software and
enterprise server and storage hardware, and its ever increasing portfolio of
international brands and strong commodity sales have contributed to increase
revenue by 14.5% to R558.8 million, notwithstanding a 17% strengthening of the
Rand.
EBITDA, at R34.5 million, although reduced by 4.8%, remained in line with budget
expectations for the period.
RentNet
The deferral and cancellation of conferences and other recurring events had a
material impact on business volumes. RentNet`s operations were transferred into
Infrasol to reduce the cost base of the company. Whilst Pinnacle as a group will
continue to pursue short-term technology rental solutions, the results of these
activities will henceforth be included in the Infrasol business unit.
DataNet
The depressed construction industry and delays in key projects combined to
reduce revenue by 3.9% to R80.2 million and, as result, EBITDA by 53% to R2.3
million.
Additional security and network agencies have been brought on board to further
diversify revenue streams, allowing DataNet to offer connectivity solutions
across fibre, copper and wireless networks.
Infrasol
The newly constituted Infrasol realised revenue of R7.2 million during the first
six months of operations, and an EBITDA loss of R1.3 million. The bulk of the
revenue generation however occurred in the latter months of the reporting period
as operations came online and Infrasol remains on track to materially recover
the loss by the end of the financial year.
Holdings
The protracted roll-out of the proposed ERP system has been shelved as
development requirements mandated by performance criteria require additional
development that will further remove the system from its core structure. The
investment of R7.9 million has consequently been impaired in compliance with
IFRS fair value requirements. The Group has entered into settlement negotiations
with the service providers.
Performance per share
The expiry of the put option on 30 June 2009, relating to the 37 281 647 shares
held by Amabubesi Investments (Pty) Limited, has removed the IFRS requirement to
add these shares back when calculating the weighted average shares in issue used
in earnings and headline earnings per share calculations.
Earnings and headline earnings per share are therefore calculated on a weighted
average of 181 836 624 shares, as opposed to the 145 497 603 shares used in the
calculations for 31 December 2008.
Stakeholders are therefore advised to consider fully diluted headline earnings
per share when comparing financial performance per share to prior years, as
fully diluted headline earnings per share had previously been based on the total
number of shares held by equity owners.
Fully diluted headline earnings per share increased by 38% to 34.3 cents per
share; net tangible asset value per share increased to 227.2 cents per share (30
June 2009: 203.3 cents per share).
Cash flow
Cash flow from operations increased by 38% to R93.7 million; investment in
working
capital however absorbed R155 million, as debtors increased to 52 days sales
outstanding; driven higher by exceptional retail sales in November and December,
from 45.2 days in June 2009 (31 December 2008: 65.1 days sales outstanding), and
creditors days outstanding reduced to 59.9 days (31 December 2008: 72.1 days).
Over the six-month period temperate growth, disciplined working capital
management and the effective application of Group treasury contributed to report
net interest earned of
R5 million (31 December 2008: net interest paid R4.6 million).
Capital expenditure
The Group invested R3.4 million in motor vehicles, IT and leasehold improvements
over the period. No material capital expenditure has as yet been considered by
the Board for the remainder of the financial year.
Corporate activity
A new venture, styled IT Wyse, was incorporated to distribute Wyse, a
specialised brand of thin client solutions. Pinnacle has a 51% stake in the new
venture. Subsequent to
31 December 2009, Pinnacle acquired a further 4.95% of the equity of DataNet,
increasing our shareholding to 55.05%. Pinnacle also acquired 51% of Moyahabo
Digital Solutions ("MDS"), a company incorporated to distribute and support
Sharp office automation products in South Africa, by agreeing to act as the
financing partner to MDS.
Prospects
The roll-out of fibre and wireless bandwidth solutions, the deregulation of
national backbones and associated cost reductions continue to drive mobility and
connectivity solutions in the South African market. The adoption rate of these
technologies and solutions remain high and dependency on ICT solutions for day-
to-day business requirements and service delivery is expected to support
hardware and software spend in the commercial and government sectors.
Pinnacle continues to diversify its revenue streams with the addition of
international brands to add and expand on hardware, software and infrastructure
technologies. The addition of Fujitsu, Sharp and Samsung amongst others, will
enable Pinnacle to expand or develop its offering in data centre, audio-visual
and office automation market segments.
The positive economic outlook should however be considered in light of
uncertainty in the retail and government forecasts relating to the next six
months.
Accounting policies
In terms of the Listings Requirements of the JSE Limited, the interim results
have been prepared in accordance with International Financial Reporting
Standards ("IFRS"), IAS 34 - Interim Financial Reporting, the Listings
Requirements of the JSE Limited and the South African Companies Act. These
accounting policies are consistent with the policies employed in the preparation
of the audited financial results for the year ended 30 June 2009, except for the
adoption of IAS 1 Revised - Presentation of Financial Statements. Other new,
revised and amended standards that have come into effect for the period have had
no effect on the presentation of this report.
Corporate governance
The Group recognises the need to conduct its business with integrity,
transparency and equal opportunity and subscribes to the spirit of good
corporate governance as set out in the King II report. The Group is currently in
the process of reviewing and evaluating its compliance with King III and a
detailed programme will be adopted to ensure optimal compliance within an
acceptable time frame.
Changes to the Board of Directors
Mrs Grathel Motau resigned as non-executive director during October 2009. At the
time, the Board extended its gratitude to Mrs Motau for her service as well as
their best wishes for her future endeavours.
Subsequent events
No events material to the understanding of the report, other than those
discussed above, had occurred in the period between the period-end date and the
date of the report.
Dividends
In line with previous years, no interim dividend is proposed for the period
under review.
For and on behalf of the Board
CD Biddlecombe AJ Fourie
Chairman Chief Executive Officer
Midrand
23 February 2010
Directors: CD Biddlecombe* (Chairman), AJ Fourie (Chief Executive Officer), H
Coetzee (Chief Financial Officer), PM Moyo*, TAM Tshivhase, A Tugendhaft*
* (Non-executive)
Registered Office: The Summit, 269, 16th Road, Randjespark, Midrand, 1685
Transfer Secretaries: Computershare Investor Services (Pty) Limited, Ground
Floor, 70 Marshall Street, Johannesburg, 2001
Auditors: BDO South Africa Inc, Registered Auditors, 13 Wellington Road,
Parktown, 2193
Sponsor: Deloitte & Touche Sponsor Services (Pty) Limited
Date: 23/02/2010 14:59:20 Produced by the JSE SENS Department.
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