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INTERCONNECTIVE - AUDITED ANNUAL FINANCIAL STATEMENTS OF
THE GROUP FOR THE YEAR ENDED 30 JUNE,
2004
INTERCONNECTIVE SOLUTIONS LIMITED
COMPANY REGISTRATION NUMBER 1997/010640/06
SHARE CODE: ILT
ISN CODE: ZAE000017943
AUDITED ANNUAL FINANCIAL STATEMENTS OF THE GROUP FOR THE
YEAR ENDED 30 JUNE, 2004
The audited annual financial statements of the group for
the year ended 30 June, 2004 were mailed to shareholders
today. In compliance with section 3.22 of the JSE
Securities Exchange South Africa Listings Requirements,
shareholders are advised that the abridged results are as
follows:
BALANCE SHEET AS AT 30 JUNE 2004
2004 2003
R `000 R `000
ASSETS
Non current assets
4,192 4,512
Property, plant and equipment
1,790 1,407
Intangible assets
1,602 2,305
Other non-current assets
800 800
Investment in subsidiaries
- -
Current assets 6,022 6,418
Inventory 246 255
Trade and other receivables 4,446 4,154
Cash and cash equivalents 1,330 2,009
Total assets 10,214 10,930
EQUITY AND LIABILITIES
Capital and reserves 4,683 5,969
Share capital 112 111
Share premium 14,096 14,034
Accumulated (losses) -9,525 -8,176
Non current liabilities 428 148
Minority shareholders interest 22 22
Current liabilities 5,081 4,791
Trade and other payables 4,757 4,568
Current portion of non current 319 223
liabilities
Bank overdraft 5
Total equity and liabilities 10,214 10,930
INCOME STATEMENT FOR THE PERIOD ENDED 30 JUNE 2004
2004 2003
R `000 R `000
Revenue 22,146 19,021
Other operating income 212 672
Direct operating costs -10,482 -8,655
Staff costs -7,915 -5,475
Depreciation and amortisation -1,258 -1,234
expense
Other operating expenses -4,062 -3,738
(Loss)profit from operations -1,359 591
Finance costs -52 -59
Investment income 62 57
(Loss) profit from ordinary -1,349 589
activities
Attributable to outside -22
shareholders
Net profit (loss) for the -1,349 567
year
Extraordinary item
Net (loss) profit for year -1,349 567
Opening accumulated losses -8,176 -8,743
- -
Change in accounting policy - -
Closing accumulated losses -9,525 -8,176
2004 2003
Basic (loss)/earnings per share -1.21 0.58
(cents)
Headline (loss)/earnings per -0.93 0.90
share (cents)
RECONCILIATION OF HEADLINE
EARNINGS
Per the income statement (cents)
-1.21 0.58
Items included in other
operating expenses: Intellectual
property amortised (cents) 0.28 0.32
Headline (loss) earnings (cents) -0.93 0.90
CASH FLOW STATEMENT FOR THE PERIOD ENDED 30 JUNE 2004
2004 2003
R `000 R `000
Cash flow from operating -185 1,571
activities
Net cash (utilised by) generated -195 1,573
from operations
Finance costs -52 -59
Investment income 62 57
Cash flow from investing -938 -1,825
activities
Decrease (increase) in
investment in
associates/subsidia 1
ries
Purchase of property, plant and -857 -250
equipment
Purchase of -81 -1,576
intangible assets
Cash flow from financing 439 1,391
activities
Share capital and share premium 63 1,565
introduced
Increase in minority - 22
shareholders interest
Increase (decrease) in non 280 -233
current liabilities
Increase in current portion of
non
current liabilities 96 37
Net (decrease) -684 1,137
increase in cash
and cash
equivalents
Cash and cash 2,009 872
equivalents at
beginning of period
Cash and cash equivalents at end 1,325 2,009
of period
NOTES TO THE CASH FLOW STATEMENT FOR THE PERIOD ENDED 30
JUNE 2004
2004 2003
R `000 R `000
RECONCILIATION OF (LOSS)PROFIT
BEFORE TAXATION
TO CASH (UTILISED BY) GENERATED
FROM OPERATIONS
(Loss) profit before taxation -1,349 567
Adjustments for : 1,248 1,236
Depreciation and amortisation 1,258 1,234
Finance costs 52 59
Investment income -62 -57
Operating (loss) profit before -101 1,803
working capital changes
Working capital changes -94 -230
Decrease in inventory 9 21
(Increase) decrease in trade -292 -1,624
and other receivables
Increase (decrease) in trade 189 1,373
and other payables
Cash (utilised by)generated from -195 1,573
operations
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and
balances with banks. Cash and cash equivalents included
in the cash flow statement comprise the following balance
sheet amounts :
Cash and cash equivalents 1,330 2,009
Bank overdraft (5) 0
1,325 2,009
STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD ENDED 30
JUNE 2004
2004 2003
R `000 R `000
Share Capital 112 111
Balance at beginning of period 111 97
Issue of share capital 1 14
Share Premium 14,096 14,034
Balance at beginning of period 14,034 12,483
Issues during the priod 62 1,551
Accumulated losses (9,525) (8,176)
Balance at beginning of period (8,176) (8,743)
Attributable (losses) profits -1,349 567
4,683 5,969
PROFILE
The group, via its wholly owned subsidiary FoneWorx (Pty)
Ltd, is a telecommunications value-added service
provider. FoneWorx is an independent switch which offers
clients a range of infotainment and business services,
and having service provider agreements with Telkom, MTN,
Vodacom and Cell C (pending). The platform currently
comprises 750 channels of digital voice and data, which
is the largest independent platform in South Africa.
FoneWorx has recently introduced a number of new business
services into the South African market, particularly
within the digital storage environment, incorporating
document storage, voice storage and text storage
(www.stordoc.net). These services complement the existing
range of business services which include fax to email,
email to fax, PC to fax, fax on demand, fax to web,
international fax and bespoke business services
incorporating financial switching for credit cards. The
relationship with EasyLink Services Inc. of the USA
continues to be developed.
The FoneWorx platform has been designed to operate as a
bureau-based or application service provider model, which
enables clients to select from a suite of services. These
range from basic and complex infotainment services to
more intricate business services. In addition, FoneWorx
is well positioned to design bespoke services on behalf
of clients which incorporate a number of the bearer
technologies adopted by the group. These services include
fax, SMS, USSD, WAP, GPRS and voice services. The
intellectual property of FoneWorx resides in the ability
to integrate various bearer technologies which allow
clients access to other technologies through one portal,
being the FoneWorx platform.
FoneWorx has also successfully run a number of services
within Africa, mainly within the SMS and IVR environment.
In doing so, it has successfully demonstrated its ability
to host services from various countries in Africa on it`s
platform in Randburg, South Africa. The company is
therefore well positioned to conduct future campaigns in
association with electronic media and advertising
agencies for products sold throughout Africa.
The group continues to be active in the security industry
through its wholly owned subsidiary, Valutronics (Pty)
Ltd, which supplies electronic readers and software for
the monitoring of guard activities. Various overseas
markets are serviced by agents in Europe and Australia.
CHIEF EXECUTIVE OFFICER`S REPORT
Revenue for the period under review increased by 23% to
R22,1 million compared to the previous twelve months.
Earnings before interest, tax, depreciation and
amortisation resulted in the company breaking even,
however with the inclusion of depreciation, amortisation
of goodwill and exchange losses (which are now
minimised), the earnings before tax resulted in a loss of
R1,3 million. The group remained cash positive at the end
of the financial year with
cash on hand of R1,3 million. The company has no debt,
save for short-term finance for capital equipment which
amounts to R747,000 in aggregate.
FoneWorx, our primary operating subsidiary, has segmented
its business into two distinct offerings, being
Infotainment Services and Business Services.
INFOTAINMENT SERVICES:
These comprise voting, promotions and competitions with
the main client base being advertising agencies, fast
moving consumer goods companies, electronic and print
media vendors. During the year under review, FoneWorx
increased the number of services it is hosting for this
target market by 15% year on year. However, call volumes
on a campaign-by-campaign basis are down by as much as a
third. This downturn in consumer response to phonein
services became evident in the last five months of the
financial year. Research shows that this downturn is
industry-wide.
As a means of countering the downturn in caller responses
to infotainment services, we are `re-packaging` our
infotainment portfolio of services to adapt to the
changing dynamics of market demands and consumer
responses. These new packages will provide us with the
ability to recover some lost turnover whilst business
services grow from a relatively small base.
During the period under review FoneWorx has worked hard
to ensure that the `key dials` of the business operate at
optimal levels. I am happy to report that the functional
divisions within the company, namely technical, sales and
administration, are all operating most professionally.
Internal processes have been streamlined and enhanced to
cope with the increased number of campaigns and volumes.
The company is therefore well positioned to
efficiently handle any increase in business without any
adverse effects. In addition, the FoneWorx platform has
been designed to cope with a multitude of campaigns
operating simultaneously and to answer high volumes of
calls, when required.
Our technical team has clearly demonstrated the ability
to design and host intricate services which encompass all
the latest bearer technologies such as: interactive voice
response (`IVR`), short message service (`SMS`), data
services, USSD, Web integration and so forth. These
skills and intellectual property have been demonstrated
in specific services that we have hosted, such as Telkom
Charity Cup, the African portion of Fame and the Africa
Cup of Nations. FoneWorx is well positioned as a service
provider for campaigns which are hosted simultaneously in
various countries in Africa and has already hosted
several campaigns which operate across the continent.
BUSINESS SERVICES:
Five primary products, comprising fax to email, email to
fax, PC to fax, international fax and digital document
storage, have been developed and introduced to the
market. These services were introduced into the FoneWorx
portfolio over the last two years after it was identified
that infotainment services, which are prone to peaks and
valleys throughout the year, needed to be supplemented by
more stable annuity-based income. They have opened up a
new target market for the group including SOHO, SME and
corporate.
Fourteen dealers, in addition to our own sales force,
have been appointed in order to maximise penetration to
the marketplace. Dealers are appointed on the basis of
their unique ability to sell these business services to
their own niche markets, which is proving to be a
successful formula.
Sales growth is at a rate of around 15% per month. We
anticipate that these products will exceed the turnover
of infotainment services within the next 12 months. The
resulting annuity income will assist the group to obtain
more predictable revenue in the future.
Valutronics, which operates in the security monitoring
market, continues to operate profitably.
It is disappointing to post a loss for the period under
review, particularly as the company had turned the
corner. However, we are positive about the launch of our
business services which have been well received by the
market, and our month-on-month growth is encouraging. We
believe that during the next financial year, the
aggregate of infotainment and business services revenues
will return the group to profitability.
During the year, the group decided to eliminate its
future exposure to foreign currencies by changing all
sales outside of South Africa to be in SA Rands. Exposure
to foreign amounts at the year end is minimal and is only
in US Dollars. All of these amounts are expected to be
liquidated before the end of the current year.
In line with the King Report on Corporate Governance in
South Africa, I relinquished the Chair of the company on
4 August 2004, on which date Ashvin Mancha was appointed
as our new Chairman, and I would like to welcome him to
this new position.
I would like to extend my sincere thanks to our staff and
management team who have worked extremely hard during the
year despite the market conditions as reflected above.
They have excelled themselves in many instances,
particularly in product development within the business
environment. I would also like to express my appreciation
to our shareholders for their continued support and we
look forward to a year which will hopefully bring
significant new developments and a turnaround in
earnings.
Mark Smith - Chief Executive Officer
COMMENTS:
The financial statements have been prepared in accordance
with South African Statements of Generally Accepted
Accounting Practice. The accounting policies used are
consistent with those in the previous financial year.
The year end financial results have been audited in terms
of the Listings Requirements of the JSE Securities
Exchange SA by G Cambanis Inc and a copy of the
unqualified audit opinion is available at the company`s
registered office.
No dividends have been declared and none are recommended.
ANNUAL GENERAL MEETING
The annual general meeting of the members of
Interconnective Solutions Ltd will be held at 10:00 on
Friday 26 November, 2004 in the boardroom of company at
372B Oak Avenue, Randburg, 2194, Johannesburg, to
transact the business as stated in the notice of the
annual
general meeting which forms part of the annual report.
DIRECTORS: Ronald Graver Ashvin Govan Mancha B Proc * -
Chairman
Gaurang Mooney BA * (Zimbabwe) Robert Russell Mark Smith
BA LLB - Chief Executive Officer Gareth Tudor CA (SA) -
Financial Director (* Non-executive)
BUSINESS ADDRESS AND REGISTERED OFFICE
372 B Oak Avenue, Randburg, 2194 PO Box 2404, Randburg,
2125
Telephone: +27 11 293 0000 Fax: +27 86 713 3141
TRANSFER SECRETARIES
Computershare Investor Services 2004 (Pty) Ltd
Ground Floor, 70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Telephone: +27 11 370 7700 , Fax: +27 11 688 7716
Website www.computershare.com
AUDITORS
G. Cambanis Inc, Registered Accountants and Auditors
ATTORNEYS
De Wet Partnership
PRINCIPAL BANKERS
Absa Bank Limited
SECRETARY
G H Tudor CA (SA) PO Box 2404, Randburg, 2125
SPONSOR:
LPC Manhattan Sponsors (Pty) Ltd
Johannesburg
29 September 2004
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