| Thu 25 Nov 2010, 13:22 | | CVN - ConvergeNet Holdings Limited and its subsidiaries - Audited financial |
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CVN
CVN
CVN - ConvergeNet Holdings Limited and its subsidiaries - Audited financial
results for the year ended 31 August 2010
ConvergeNet Holdings Limited and its subsidiaries
(Registration number 1998/015580/06)
JSE code: CVN ISIN: ZAE000102067
Audited financial results for the year ended 31 August 2010
Condensed Consolidated Statement of Comprehensive Income
Audited Audited
year ended year ended
31 Aug 2010 31 Aug 2009
R`000 R`000
Continuing operations
Revenue 784,325 983,479
Cost of sales (542,373) (745,218)
Gross profit 241,952 238,261
Other income 11,409 4,233
Operating expenses (226,007) (187,117)
Operating profit 27,354 55,377
Investment income 5,122 7,659
Share of profit of associates 2,709 1,043
Finance costs (4,522) (3,490)
Profit before taxation 30,663 60,589
Taxation (4,967) (13,533)
Profit for the period from continuing operations 25,696 47,056
Discontinued operations
Profit for the period from discontinued operations 10,606 15,588
Profit for the period 36,302 62,644
Other comprehensive income - -
Total comprehensive income for the year 36,302 62,644
Attributable to:
Equity holders of the parent
Profit for the period from continuing operations 17,727 29,908
Profit for the period from discontinued operations 7,848 11,535
25,575 41,443
Non-controlling interests
Profit for the period from continuing operations 7,969 17,148
Profit for the period from discontinued operations 2,758 4,053
10,727 21,201
36,302 62,644
Earnings per share
Basic earnings per ordinary share (cents)
From continuing operations 2.00 3.62
From discontinued operations 0.89 1.40
2.89 5.02
Fully diluted basic earnings per ordinary share (cents)
From continuing operations 1.98 3.55
From discontinued operations 0.88 1.37
2.86 4.92
Weighted average number of shares 885,444,513 825,692,929
Fully diluted weighted average number of shares 893,990,941 842,111,976
Total number of shares in issue 915,115,941 905,415,155
Headline earnings per share (cents)
From continuing operations 1.11 3.42
From discontinued operations 0.87 1.41
1.98 4.83
Fully diluted headline earnings per share (cents)
From continuing operations 1.10 3.35
From discontinued operations 0.87 1.38
1.97 4.74
Reconciliation between basic and headline earnings
From continuing operations
Basic earnings attributable to equity holders of
parent 17,727 29,908
Loss/(profit) on disposal of assets 1,713 (113)
(Profit) on disposal of assets of associates - (34)
(Profit) on disposal of subsidiaries and associates (7,245) (2,257)
Gain on bargain purchases (5,380) (209)
Tax effect of profit on disposal of subsidiaries 1,667 -
Portion of adjustments attributable to
non-controlling interests 1,345 927
Headline earnings from continuing operations 9,827 28,222
Headline earnings from discontinued operations 7,743 11,656
17,569 39,878
Net asset value per share (cents) 49.8 46.9
Net tangible asset value per share (cents) 27.3 15.7
Condensed Consolidated Statement of Financial Position
Audited Audited
as at as at
31 Aug 31 Aug
2010 2009
R`000 R`000
ASSETS
Non-current assets
Property, plant and equipment 28,638 27,760
Goodwill 184,893 247,651
Intangible assets 21,693 34,747
Investments in associates 26,347 3,653
Other financial assets 37,346 -
Deferred taxation 23,093 15,216
322,010 329,027
Current assets
Inventories 78,166 50,287
Loans to group companies - 6,177
Other financial assets 19,867 32,891
Current tax receivable 3,122 1,600
Trade and other receivables 227,155 254,711
Cash and cash equivalents 77,184 103,717
405,494 449,383
TOTAL ASSETS 727,504 778,410
EQUITY AND LIABILITIES
Total equity
Shareholders` equity 456,073 424,436
Non-controlling interest 56,992 85,817
513,065 510,253
Liabilities
Non-current liabilities
Vendors for acquisition - 1,707
Other financial liabilities 17,507 7,140
Finance lease obligation 1,446 1,299
Operating lease liability 1,077 -
Deferred taxation 8,293 10,393
28,323 20,539
Current liabilities
Vendors for acquisition 4,063 4,815
Other financial liabilities 3,596 5,104
Current tax payable 5,453 16,910
Finance lease obligation 778 1,196
Provisions 5,478 4,633
Trade and other payables 152,253 200,254
Bank overdraft 14,495 14,706
186,116 247,618
Total liabilities 214,439 268,157
TOTAL EQUITY AND LIABILITIES 727,504 778,410
Condensed Consolidated Statement of Cash Flows
Audited Audited
year ended year ended
31 Aug 2010 31 Aug 2009
R`000 R`000
Net cash (utilised in)/from operating activities (15,501) 61,468
Net cash from/(utilised in)investing activities 16,927 (165,506)
Net cash (utilised in)/from financing activities (27,748) 104,478
Net (decrease)/increase in cash and cash equivalents (26,322) 440
Cash at the beginning of the year 89,011 88,571
Total cash at end of the year 62,689 89,011
Condensed Consolidated Statement of Changes in Equity
Audited Audited
year ended year ended
31 Aug 2010 31 Aug 2009
R`000 R`000
Balance beginning of the year 510,253 310,930
Net profit for the year 36,302 62,644
Issue of treasury shares in terms of
forfeitable share plan 9,555 7,252
Shares forfeited in terms of forfeitable
share plan - 640
Acquisition of businesses 4,850 162,477
Transactions with non-controlling shareholders (28,679) (14,718)
Expenses recognised directly in equity (8) (945)
Revaluation reserve - 20
Own shares acquired by subsidiaries,
held as treasury shares (5,575) (3,280)
Subsidiary sold (5,146) -
Dividends by subsidiaries to non-controlling
shareholders (8,487) (14,767)
Balance at end of year 513,065 510,253
Condensed Segmental Information
Information regarding the group`s reportable segments is presented below.
Amounts reported for the prior year have been restated to conform to the
requirements of IFRS 8.
R`000
IT Telecom
infrastructure infrastructure Corporate,
technology technology consolidation
solutions solutions and other Total
2010 2010 2010 2010
From continuing operations
Revenue 599,620 177,793 6,912 784,325
Profit from operations 24,150 10,673 (7,469) 27,354
Investment income 2,417 1,775 930 5,122
Share of profits
of associates 2,009 - 700 2,709
Finance costs (3,097) (1,388) (37) (4,522)
Profit before tax 25,479 11,060 (5,876) 30,663
Income tax (expense)/
benefit (8,500) (4,673) 8,206 (4,967)
Profit for the year from
continuing operations 16,979 6,387 2,330 25,696
Profit for the period
from discontinued operations - 10,606 - 10,606
Profit for the year 16,979 16,993 2,330 36,302
IT Telecom
infrastructure infrastructure Corporate,
technology technology consolidation
solutions solutions and other Total
2009 2009 2009 2009
From continuing operations
Revenue 837,207 145,392 880 983,479
Profit from operations 37,418 19,785 (1,826) 55,377
Investment income 5,210 2,175 274 7,659
Share of profits
of associates 1,043 - - 1,043
Finance costs (2,668) (806) (16) (3,490)
Profit before tax 41,003 21,154 (1,568) 60,589
Income tax (expense)/
benefit (12,805) (5,833) 5,105 (13,533)
Profit for the year from
continuing operations 28,198 15,321 3,537 47,056
Profit for the period
from discontinued operations - 15,588 - 15,588
Profit for the year 28,198 30,909 3,537 62,644
Commentary
1. Statement of compliance
The condensed consolidated financial information has been prepared in accordance
with IAS 34 - Interim financial reporting and is a summary of the unmodified
audited financial statements of the group for the year ended 31 August 2010,
which have been prepared in accordance with International Financial Reporting
Standards ("IFRS"), the Listings Requirements of the JSE Limited, and the
Companies Act of South Africa.
2. Accounting policies
The audited results for the year ended 31 August 2010 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 except for the adoption of all new, revised or amended standards
and interpretations which were effective for the group from 1 September 2009 and
the early adoption of the 2009 amendment to IFRS 8 which relates to the
disclosure of segment assets and liabilities.
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
Ms Lerato Mangope has been appointed as an independent non-executive director
with effect from 21 July 2010.
5. Operating results
Revenue decreased by 20% to R784 million compared to the corresponding period
primarily as a result of delays in the award of some major contracts and the
prevailing challenging economic environment. The majority of these contracts
have subsequently been awarded and the financial benefit will be evident from
the second quarter of the new financial year.
Despite the challenging market and economic environment, ConvergeNet managed to
increase its gross profit margin from 24% to 31% compared to the corresponding
period.
Operating profit decreased by 51% to R27 million compared to the corresponding
period primarily as a result of a 21% increase in operating expenses. The full
year effect of the Contract Kitting acquisition and a once-off bad debts write-
off of R6.7 million was responsible for 11% of the 21% increase.
Employee costs have also increased by 8% primarily as a result of the
appointment of additional sales people to strengthen our sales capabilities.
However, corrective measures have been undertaken to reduce operating
expenditure, the results of which will be evident in the new financial year.
As a result of the decrease in revenue and operating profits, earnings per share
decreased by 43% and headline earnings per share decreased by 59% compared to
the corresponding period.
Despite the decrease in earnings, the financial position of the group remains
strong with the only interest-bearing debt being those relating to mortgage
bonds on certain properties and, primarily as the result of the FutureCell sale,
the net tangible asset value per share increased by 73% to 27 cents per share.
Following the disposal of the 54% interest in FutureCell on 30 June 2010 (see
note 6.3 below) which resulted in a loss of control, the results of FutureCell
for the period up to 30 June 2010 are shown separately as "Discontinued
operations" in the Statement of Comprehensive Income. Comparative figures have
been restated accordingly. As ConvergeNet is retaining a 20% interest, its 20%
share in the profits of FutureCell for the period 1 July 2010 to 31 August 2010
has been included in "Share of profit of associates".
6. Corporate activities
6.1 Completion of the Contract Kitting acquisition
The amount of R4.850 million due to the original Chrystalpine Investments 9
(Pty) Ltd ("CK") vendors on 31 August 2009 as a result of CK achieving its
profit targets has been settled through the issue of 9 700 786 shares in
ConvergeNet at 50 cents per share, being the 30 day volume weighted average
price of the share as at 31 August 2009.
6.2 Transactions with non-controlling shareholders
ConvergeNet also acquired an additional 15% interest in Sizwe Africa IT Group
(Pty) Ltd ("Sizwe") for a purchase consideration of R18 million. The purchase
consideration was settled in cash. ConvergeNet now has a 75% interest in Sizwe.
The acquisition of additional shares in Sizwe is to be ratified by the
shareholders of the company at a general meeting of shareholders of ConvergeNet
to be held on 1 December 2010. Shareholders` approval was not anticipated on the
date of the transaction and was not a condition to the purchase agreement, but
was required due to fluctuation in the company`s share price around the time of
approval from the JSE. ConvergeNet has however secured irrevocable letters of
support for this transaction from more than 50% of the shareholders who will be
eligible to vote at the said general meeting.
Sizwe Africa IT Group (Pty) Ltd, on 1 September 2009, acquired the remaining 30%
interest in ConvergeNet Networks (Pty) Ltd for a purchase consideration of
R1.888 million, which will be settled in cash; and effective 1 March 2010 also
acquired the remaining 60% interest in Koba IT Solutions (Pty) Ltd for R0.924
million and the remaining 55% in Travel Mall (Pty) Ltd for R2.426 million. Both
of these transactions have been settled in cash.
6.3 Sale of business
With effect from 30 June 2010, ConvergeNet disposed of 54% of the 74% issued
share capital it held in FutureCell to Pepkor Retail Limited ("Pepkor") for a
sale consideration of R66.198 million.
The sale consideration consisted of a cash portion of R49.188 million of which
R38.203 million was paid prior to 31 August 2010 and R10.985 million
subsequently and a deferred payment of R17.010 million payable on or after 31
August 2012.
The deferred payment is subject to FutureCell achieving a profit before interest
and tax of R49.000 million for the period ending 31 August 2012, failing which
the amount will be reduced proportionately with R5.75 for every R1 profit less
the R49.000 million.
A separate put and call option agreement has also been concluded regarding the
remaining 20%. These options will expire on 31 August 2015 and will be valued
using a fixed PE ratio of 5.75.
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. As a result hereof
no dividend has been proposed for the period under review.
8. Industry and group outlook
There continues to be substantial demand for the group`s products, solutions and
services. Whilst many opportunities were delayed as a result of the current
economic situation, these needs will be fulfilled in the short to medium term.
We expect the market conditions to improve next year and beyond.
The directors of ConvergeNet are satisfied that the fundamentals of the
businesses remain sound and the group will continue to cautiously invest in
previous identified strategic growth areas.
9. Post balance sheet events
There have been no significant events subsequent to year-end up until the date
of this report that requires adjustments 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
24 November 2010
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*, L Mangope#, T
Modise, MI Scott#, S Swana#, DD Tabata*, H van Dyk (*Non-Executive/#Independent
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
Web: www.convergenet.co.za
Date: 25/11/2010 13:22:15 Produced by the JSE SENS Department.
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