| Thu 14 Sep 2006, 17:45 | | Pinnacle - Audited results for the twelve months e |
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PNC
PNC
Pinnacle - Audited results for the twelve months ended 30 June 2006 and dividend
declaration
Pinnacle Technology Holdings Limited
(Registration number 1986/000334/06)
Share Code: PNC
ISIN: ZAE000022570
("Pinnacle" or "the Group" or "the Company")
www.pinnacle.co.za
AUDITED RESULTS for the twelve months ended 30 June 2006 and dividend
declaration
Highlights
- Turnover increased 48% to R1 061 million
- Operating profit increased 65% to R62,3 million
- Headline earnings increased 104% to 31,0 cents per share
- Cash and cash equivalents increased R104 million to R166 million
- Dividend increased 75% to 7 cents per share
GROUP INCOME STATEMENT
for the year ended 30 June 2006
2006 2005
R"000 R"000
Revenue 1 060 793 715 468
Cost of sales (893 708) (594 014)
Gross profit 167 085 121 454
Operating expenses (104 793) (79 706)
Recovery of bad debt 5 159 -
EBITDA 67 451 41 748
Depreciation (4 426) (3 912)
Impairment of intangible assets (709) -
Operating (loss)/profit before interest 62 316 37 836
Interest received 5 051 3 790
Interest paid (4 619) (4 479)
Net profit before taxation 62 748 37 147
Taxation (18 688) (12 349)
Net profit for the year 44 060 24 798
Attributable to:
Ordinary equity shareholders 44 119 22 550
Minority shareholders (59) 2 248
Earnings per share (cents) 30,3 15,2
Headline earnings per share (cents)
- Normal 30,8 15,2
- Fully diluted 29,5 15,2
Earnings per share
Earnings per share has been calculated
using the following:
Net profit for the year 44 119 22 550
Weighted average number of shares in
issue for the year (`000) 145 738 148 446
Earnings per share (cents) 30,3 15,2
Headline earnings per share
Headline earnings per share has been
calculated using the following:
Net profit for the year 44 119 22 550
Add back:
Impairment of investments and loans - -
Amortisation of goodwill 709 -
44 828 22 550
Weighted average number of shares in
issue for the year (`000) 145 738 148 446
Headline earnings per share (cents) 30,8 15,2
Fully diluted headline earnings per share
Fully diluted headline earnings per share
has been calculated using the following:
Net profit for the year 44 119 22 550
Add back:
Impairment of goodwill 709 -
AC133 interest 881 -
45 709 22 550
Weighted average number of shares in
issue for the year (`000) 154 727 148 446
Fully diluted headline earnings
per share (cents) 29,5 15,2
SEGMENTAL REPORT
for the year ended 30 June 2006
2006
Net Liabili-
Revenue EBITDA profit Assets ties
R"000 R"000 R"000 R"000 R"000
Infrastructure
and support 697 438 40 724 28 744 334 206 (302 517)
Software 353 148 21 226 13 035 206 638 (197 759)
ICT Services 10 207 3 278 1 058 9 269 (7 493)
Holdings and
properties - 2 223 1 282 40 410 71 502
1 060 793 67 451 44 119 590 523 (436 267)
2005
Net Liabili-
Revenue EBITDA profit Assets ties
R"000 R"000 R"000 R"000 R"000
Infrastructure
and support 519 524 34 025 20 872 165 529 (155 453)
Software 188 790 8 194 4 372 65 907 (64 633)
ICT Services 5 405 3 780 2 116 4 449 (3 448)
Telecommu-
nication 1 749 (2 799) (2 899) 2 170 (7 667)
Holdings and
properties - (1 452) (1 911) 36 822 66 036
715 468 41 748 22 550 274 877 (165 165)
GROUP BALANCE SHEET
as at 30 June 2006
2006 2005
R"000 R"000
ASSETS
Non-current assets 93 066 51 135
Property, plant and equipment 44 081 36 355
Intangible assets 40 359 10 075
Trust loans 3 364 -
Deferred taxation 5 262 4 705
Current assets 497 458 223 742
Inventories 119 384 64 270
Trade and other receivables 211 884 96 907
Cash and cash equivalents 166 190 62 565
Total assets 590 524 274 877
EQUITY AND LIABILITIES
Capital and reserves 152 765 107 122
Share capital and premium 133 993 126 094
Treasury shares (6 572) (4 138)
Non-distributable reserves 8 987 9 729
Put option 1 910 -
Accumulated profit/(loss) 14 447 (24 563)
Minority shareholders" interest 1 492 2 590
Non-current liabilities 46 588 7 887
Interest-bearing liabilities 46 588 7 887
Current liabilities 389 679 157 278
Trade and other payables 336 419 140 336
Short-term loans - 1 693
Current portion of interest-bearing
liabilities 27 805 6 361
Warranty provisions 8 466 7 256
Taxation 16 989 1 632
Total equity and liabilities 590 524 274 877
STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2006
Non-
distri-
Share Share Put Treasury butable
capital premium option shares reserves
R"000 R"000 R"000 R"000 R"000
Balance at
1 July 2004 1 491 124 575 - - 9 663
IAS16 - Fair value
adjustments - - - - -
Restated balances
at 30 June 2004 1 491 124 575 - - 9 663
Issue of shares 1 27 - - -
Treasury shares
bought - - - (4 138) -
Dilution of subsi-
diary shareholding - - - - -
Net profit for the
year - - - - -
Dividends declared
Movement in foreign
currency translation
reserve - - - - 66
Balance at
30 June 2005 1 492 124 602 - (4 138) 9 729
Issue of shares 376 36 117 - - -
Value of put option
to Amabubesi
Investments (Pty)
Limited - (1 910) 1 910 - -
Financial liability - (26 684) - - -
Net profit for
the year - - - - -
Treasury shares
bought - - - (6 398) -
Treasury shares
issued - - - 3 964 -
Profit on sale
of subsidiary - - - - (801)
Acquisition of
minority share-
holders" portion
of non-distribut-
able reserves - - - - 74
Dividends declared - - - - -
Reallocation of
shareholder"s loan - - - - -
Movement in foreign
currency translation
reserve - - - - (15)
Balance at
30 June 2006 1 868 132 125 1 910 (6 572) 8 987
STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2006 (continued)
Ordinary
Accu- share-
mulated holders" Minority Total
loss total interest equity
R"000 R"000 R"000 R"000
Balance at
1 July 2004 (43 946) 91 783 1 670 93 453
IAS16 - Fair value
adjustments 594 594 - 594
Restated balances
at 30 June 2004 (43 352) 92 377 1 670 94 047
Issue of shares - 28 (37) (9)
Treasury shares bought - (4 138) - (4 138)
Dilution of subsidiary
shareholding (154) (154) 154 -
Net profit for the
year 22 550 22 550 2 248 24 798
Dividends declared (3 607) (3 607) (1 445) (5 052)
Movement in foreign
currency translation
reserve - 66 - 66
Balance at
30 June 2005 (24 563) 107 122 2 590 109 712
Issue of shares - 36 493 (803) 35 690
Value of put option
to Amabubesi Investments
(Pty)Limited - - - -
Financial liability - (26 684) - (26 684)
Net profit for
the year 44 119 44 119 (59) 44 060
Treasury shares bought - (6 398) - (6 398)
Treasury shares issued - 3 964 - 3 964
Profit on sale
of subsidiary 801 - - -
Acquisition of minority
shareholders" portion
of non-distributable
reserves - 74 (74) -
Dividends declared (5 910) (5 910) (333) (6 243)
Reallocation of
shareholder"s loan - - 171 171
Movement in foreign
currency translation
reserve - (15) - (15)
Balance at
30 June 2006 14 447 152 765 1 492 154 257
SUMMARISED GROUP CASH FLOW STATEMENT
for the year ended 30 June 2006
2006 2005
R"000 R"000
Cash flows from operations
Cash receipts from customers 980 314 707 836
Cash paid to employees and suppliers (873 736) (660 135)
Cash generated from operations 106 578 47 701
Interest received 4 907 3 790
Interest paid (4 619) (4 479)
Taxation paid (4 489) (6 875)
102 377 40 137
Cash flows from investing activities
Expenditure to maintain operating capacity
Property, plant and equipment acquired (12 119) (3 915)
Proceeds on the disposal of property,
plant and equipment 329 529
Acquisition of intangibles (15) -
Acquisition of Explix Technologies
(Pty) Limited (25 238) 7 219
Acquisition of minority shareholders"
interest in subsidiaries (4 819) (37)
(41 862) 3 796
Cash flows from financing activities
Net increase in long-term liabilities 19 210 (1 584)
Share capital and premium raised 36 262 28
Treasury shares acquired (6 398) (4 138)
Dividends and share premium paid (5 964) (5 052)
43 110 (10 746)
(Decrease)/increase in cash and
cash equivalents 103 625 33 187
Cash and cash equivalents at
the beginning of the year 62 565 29 378
Cash and cash equivalents at
the end of the year 166 190 62 565
TRANSITIONAL REPORT
30 June 30 June 1 July
2006 2005 20054
R"000 R"000 R"000
Assets
SA GAAP 43 586 35 785 35 000
IAS16 962 1 037 837
IAS38 (467) (467) -
IFRS 44 081 36 355 35 837
Deferred taxation
SA GAAP 5 541 5 006 11 689
IAS16 (279) (301) (244)
IFRS 5 262 4 705 11 445
Equity
SA GAAP 13 764 (25 299) (43 946)
IAS16 683 736 594
IFRS 14 447 (24 563) (43 352)
Profit
SA GAAP 44 172 22 407
IAS16 - fair value
adjustments (75) 200
IAS16 - deferred taxation 22 (57)
IFRS 44 119 22 550
Introduction
To explain how Pinnacle"s reported performance and the financial position are
impacted by International Financial Reporting Standards ("IFRS"), information
previously published under South African statements of Generally Accepted
Accounting Practice ("SA GAAP") has been restated and reconciled to the
equivalent basis under IFRS. This restatement follows the guidelines set out in
IFRS 1: First-time adoption of IFRS. The financial information has been prepared
in accordance with IFRS standards effective at 30 June 2006.
Basis of preparation
The consolidated balance sheet at 30 June 2005 and the consolidated income
statement for the year then ended were prepared in accordance with IFRS, in
order to establish the financial position and results of operations needed to
provide the comparative information to be included in the first set of financial
statements for the year ended 30 June 2006.
Transitional arrangements
Pinnacle"s date of transition to IFRS has been established as 1 July 2004. IFRS
requires retrospective application of all standards of IFRS applicable as at 31
March 2006. At the transition date, IFRS allows a number of exemptions to the
retrospective application principle.
Pinnacle made the following elections relating to the transitional arrangements:
Elections applicable at 1 July 2004
Cumulative translation differences
Cumulative translation differences for foreign operations are deemed to be zero
at the transition date.
Business combinations
It was decided not to retrospectively apply the requirements of IFRS 3: Business
combinations for business combinations that occurred prior to 30 June 2004.
Consequently, no adjustments have been made for historical business
combinations.
Property, plant and equipment
In terms of IFRS 1, a first-time adopter may elect to use either the fair value
of individual property and equipment, or the revalued carrying value under
previous SA GAAP, at the transition date, at the deemed cost. Alternatively, a
first-time adopter may measure individual items of property and equipment at
depreciated cost, determined in accordance with IFRS. The elections are
available to each individual asset. Pinnacle has made this transitional election
on an asset level, as the circumstances require.
Elections applicable at 1 July 2005
Comparatives
Comparative information presented in the first-time adoption of IFRS is not
restated in accordance with IAS32: Financial instruments -disclosure and
presentation, IAS39: Financial instruments - recognition and measurement and
IFRS 4: insurance contracts.
Estimates
Where estimates were previously made under SA GAAP, consistent estimates (after
adjustments to reflect any differences in accounting policies) have been made on
transition to IFRS.
Cash flow statement
None of the IFRS adjustments to the cash flow statement were material.
Material adjustments
The basis of the material adjustments between SA GAAP and IFRS, as shown in the
Reconciliation of Equity and Reconciliation of Income Statement tables, is noted
above. Note that the adjustments are shown net of the associated tax, where
applicable.
Cumulative translation differences
Under SA GAAP, Pinnacle classified investments in foreign subsidiaries as
foreign entities. The foreign currency adjustments arising from the translation
of foreign entities were recognised directly in equity, constituting a foreign
currency translation reserve.
The distinction between foreign entities and integrated foreign operations,
based on the intention of management, has been removed. IFRS requires each
entity to determine the currency of the primary economic environment in which it
operates. An entity, which has a non-Rand functional currency, is translated at
the closing exchange rate and the closing rate and differences are reported
directly in equity, but all other entities which have Rand as a functional
currency report foreign currency translation differences in profit and loss.
In terms of IFRS 1, Pinnacle has elected that cumulative translation differences
for foreign operations be deemed zero at the transition date.
Property, plant and equipment
Previously property, plant and equipment were depreciated on a straight-line to
the estimated residual values. These residual values were fixed at the date of
acquisition and not re-assessed annually.
Under IFRS, significant parts of property, plant and equipment are identified
separately and the residual values of these components are now re-determined on
each balance sheet date. Depreciation ceases when the carrying value of an asset
equals its residual value.
COMMENTARY
Impact of IFRS
1) Accounting policies
In terms of the Listings Requirements of the JSE Limited, the results have been
prepared in accordance with IFRS, the Listings Requirements of the JSE Limited
("JSE") and the South African Companies Act.
The Group has adopted and applied IFRS for the first time for the year ended 30
June 2006.
The transition date is 1 July 2004 ("the transition date"). The Group"s opening
IFRS balance sheet at the transition date and the comparative results for each
of the reporting periods have therefore been restated to reflect the statements
that are applicable at 30 June 2006.
The Transitional Report contains details of the adjustments effected.
2) Audit opinion
BDO Simama Incorporated has audited the financial information set out in this
report and their unqualified audit report is available for inspection at the
registered office of the Company.
3) Adjustments implemented with effect 1 July 2004
a. IAS16 - Revision of estimated useful lives and residual values of property,
plant and equipment. Past interpretation of SA GAAP did not provide for the re-
assessment of an asset"s useful life and residual value annually. The revised
version of IAS16 requires useful lives and residual values to be reviewed at
least at each financial year-end. This resulted in an increase in distributable
reserves with a corresponding increase in property, plant and equipment.
b. IAS38 - Computer software previously included under property, plant and
equipment has retrospectively been classified as intangible assets.
4) Financial overview
Continued improvement of the Pinnacle business model, favourable international
and domestic economic conditions as well as increased market share continues to
contribute to the financial results of the Group.
This has allowed the directors to focus on brand awareness and perception in our
target markets by improving pricing, enlarging stock holding, extending credit
terms, maintaining quality and effective brand communication.
a. Revenue
The acquisition of an additional 50% of Explix Technologies (Pty) Limited
("Explix") contributed approximately R107 million (15%) revenue and organic
growth R239 million (33%) to the 48% increase in Group revenue to R1 061
million.
Infrastructure and support increased by 34% to R697 million (2005: R519,5
million) on growth in the channel, CCTV, mass retail and government divisions in
the segment.
The Software business segment delivered revenue growth of 31%. 50% of these
results were consolidated in the year up to 28 February 2006, and 100%
thereafter to June 2006. RentNet Rentals (Pty) Limited increased its revenue by
89% to R10,2 million (2005: R5,4 million) on increased market share.
b. Gross profit declined from 16,98% in June 2005 to 15,75% as a result of
internal programmes designed to secure loyalty amongst our Infrastructure and
support customer base and the effect of lower software margins on the
consolidation of 100% of Explix Technologies Pty) Limited.
c. The Group moved into a net interest earned position on the settlement of non-
current liabilities, improved cash management and effective treasury functions.
Interest paid relates primarily to finance costs on Explix working capital
facilities and long-term loans due to minority shareholders.
d. Intangible assets increased to R40,3 million (2005: R10 million) on the
acquisition of 50% of Explix Technologies (Pty) Limited, 35% of Pinnacle Micro
Cape (Pty) Limited, 40% of RentNet Rentals (Pty) Limited and the
reclassification of software to intangible assets.
e. Trust loans were created by the implementation of the Pinnacle Black
Executive Share Trust as approved by shareholders on 28 October 2005.
f. Deferred taxation assets increased to R5,2 million (2005: R4,7 million) on
the creation of temporary timing differences relating to provisions and
accruals.
g. Inventory levels increased to R119 million (2005: R64 million) to accommodate
the growth in turnover. Days stock on hand increased from 39,5 to 42,5, well
within management target of 45 days stock on hand.
h. Trade and other receivables increased to R208 million (R96,6 million) and the
average days sales outstanding increased from 43,2 to 55,5 days. Management
believes this should be at a maximum of 50 days and have implemented programmes
to return to a more acceptable level before the next year-end. All aged debts
have been evaluated for impairment, and if deemed doubtful, provided for.
i. Interest-bearing liabilities
A financial liability to the value of R27,4 million was created to fulfil IFRS
requirements relating to the put option offered to Amabubesi Investments (Pty)
Limited. The financial liability is equal to the present value of the potential
repayment that may be paid to Amabubesi, should the company not achieve the
profit conditions described in the circular to shareholders. The financial
liability in turn gives rise to a material interest charge under IAS39 which,
legally and commercially, will not be paid.
R17,2 Million relate to the long-term portion of unpaid balances due to Hendev
(Pty) Limited on the acquisition of 35% of Explix Technologies (Pty) Limited.
This loan bears interest at 10% per annum.
5) Accounting for Black Economic Empowerment transactions (AC503)
AC503 seeks to address the accounting treatment of transactions where equity was
issued at a value less than the fair value of the financial instrument, and is
compulsory for all transactions entered into in financial years commencing after
1 May 2006.
Whilst the issue of shares to Amabubesi Investments (Pty) Limited does not fall
within the above period, the Pinnacle board of directors considered the
recommendation to adopt the accounting treatment in earlier periods, as
recommended in AC503.22.
Such treatment would have resulted in a once off, non-cash flow charge to the
income statement to the value of R50 330 223, and a resulting increase in
equity.
The board believes that significant effort would be required to educate
shareholders on the correct interpretation of the above transaction and believes
early adoption could be misunderstood in the current market. As such, the
transaction will be reflected in the comparative values in the 2007 Financial
Statements, with sufficient disclosure to give stakeholders adequate comfort in
accordance with SAICA Circular 8/2006, Disclosure of Accounting Policy for
Accounting for Black Economic Empowerment (BEE) Transactions.
6) Future prospects
The convergence of IT, home entertainment and mobile technologies will usher in
a new wave of enabling and entertainment focused product offerings over the next
five years. Combined with the imminent launch of Microsoft and Intel"s new 64
bit technologies, management believe demand for ICT products will be stimulated
in all sectors of the market.
Reliable data storage and disaster recovery technologies are fast becoming a
necessity in all sectors of the economy as SME, corporate and government clients
are increasingly dependent on information technology for their effective
operation. Pinnacle remains committed to the delivery of fit for purpose
solutions across these various sectors.
Under the guidance of the African renaissance programme, NEPAD, schools
laboratories in Mauritius and Uganda were equipped with Proline hardware. On
completion of the assessment phase a number of projects are expected to be
awarded to successful contributors. Pinnacle remains confident in its ability to
participate and contribute in this highly regarded endeavour.
Whilst the increase in prime lending rates and energy costs will have an impact
on disposable income, South Africa"s commitment to the 2010 soccer world cup is
expected to sustain and enhance growth in the economy for the foreseeable
future. Mobile networks and technologies are being deployed in commercial and
residential areas at a rapid pace and will soon become an accepted and expected
part of the communications infrastructure. Developments in broadband technology,
reduction in costs and increased competition in service delivery will further
enhance the functionality of ICT technologies.
7) Broad-based Black Economic Empowerment
Pinnacle issued 20% of its equity to a BEE investment group headed by Amabubesi
Investments (Pty) Limited. The transaction was consummated when 37 281 647
shares were issued on 8 April 2006. Pinnacle also issued 7 million Pinnacle
shares at 50 cents per share to Mr TAM Tshivhase, an executive director, under a
staff share purchase scheme. These two transactions, together with our existing
BEE shareholders have resulted in Pinnacle reaching the 30% mark as far as being
a truly Black Economic Empowered company.
The Group has embarked on a systematic process, guided by The Codes of Good
Practise issued by the Department of Trade and Industry, to fulfil the
requirements of Broad-based Black Economic Empowerment including employment
equity, management and control, skills development, procurement and equity
ownership.
8) Corporate activity
Pinnacle acquired the remaining 50% of the ordinary shareholding of Explix
Technologies (Pty) Limited ("Explix"), for an amount of R25,2 million, taking
its shareholding in the company up to 100% (2005: 50%). As a related party
transaction, an independent expert, Arcay Corporate Services, was appointed.
Their fair and reasonable opinion on the acquisition is available at Pinnacle"s
offices for shareholders" consideration.
Pinnacle acquired the remaining 35% of Pinnacle Micro Cape (Pty) Limited and the
remaining 40% of RentNet Rentals (Pty) Limited in unrelated transactions
amounting to R2,4 million and R9,8 million, respectively.
Goodwill increased by R32 million as a result of these acquisitions.
Pinnacle has embarked on a specific acquisition strategy, and with its strong
balance sheet is consistently on the lookout for quality acquisitions in the
technology sector. These acquisitions should enhance the Group"s technology
offering into the market, increase operating margins and hence shareholder
value.
9) 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.
10) Board of directors
Mr PM Moyo and Mrs HG Motau were appointed as non-executive directors and Mr H
Coetzee as an executive director during the year.
11) Subsequent events
Other than as disclosed in Paragraph 7, no events material to the understanding
of the report have occurred in the period between the period-end date and the
date of the report.
12) Annual general meeting and dividend payments
The directors have proposed a final dividend of 7 cents per share for the 2006
financial year.
Salient dates are as follows:
2006
Forms of proxy for annual general meeting to
be received by 10:00 on Wednesday, 25 October
Annual general meeting of the shareholders
held at 10:00 on Friday, 27 October
Results of annual general meeting announcement
published on SENS and dividend distribution
of 7 cents per share confirmed Friday, 27 October
Last day to trade "CUM" dividend Friday, 10 November
Ordinary shares trade "EX" dividend Monday, 13 November
Record date to be recorded in the register
to participate in the dividend distribution Friday, 17 November
Payment to shareholders in respect of the
dividend distribution Monday, 20 November
No share certificates may be dematerialised or rematerialised between Monday, 13
November 2006 and Friday, 17 November 2006, both days inclusive.
Posting of cheques or electronic bank transfers in respect of certificated
shareholders. Accounts credited as Central Securities Depository Participant or
broker in respect of dematerialised shareholders.
For and on behalf of the Board
CD Biddlecombe AJ Fourie
Chairman Chief Executive Officer
Midrand
14 September 2006
Directors: CD Biddlecombe* (Chairman), AJ Fourie (Chief Executive Officer), H
Coetzee, HG Motau*, PM Moyo*, TAM Tshivhase,
A Tugendhaft*
*Non-executive
Registered office: The Summit, 269, 16th Road, Randjespark, Midrand
Transfer Secretaries: Computershare Investor Services 2004 Pty) Limited, Ground
Floor, 70 Marshall Street, Johannesburg, 2001
Sponsor: Deloitte & Touche Sponsor Services (Pty) Limited
Date: 14/09/2006 05:45:29 PM Produced by the JSE SENS Department
