| Thu 30 Nov 2006, 17:13 | | Set Point - Reviewed Results For The Year Ended 31 |
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STO
STO
Set Point - Reviewed Results For The Year Ended 31 August 2006
And Withdrawal Of Cautionary Announcement
Set Point Technology Holdings Limited(Incorporated in the Republic of
South Africa)(Registration number: 1996/014334/06)Share code: STO & ISIN:
ZAE000013629("Set Point" or "the company" or "the group")
Reviewed Results for the year ended 31 August 2006 and withdrawal of
cautionary announcement
Condensed consolidated income statements
Reviewed Audited year
year ended ended
31 August 31 August
2006 2005
R000 R000
Revenue 315 665 239 628
Cost of sales (189 122) (126 055)
Gross profit 126 543 113 573
Other income 4 343 2 516
Administrative expenses (127 297) (84 803)
Includes:
- Goodwill impairment** (11 330) (679)
- Impairment and amortisation of (8 031) (202)
intangible assets
- Loss on disposal of plant and (563) -
equipment
Operating profit 3 589 31 286
Finance income 5 373 4 443
Finance expense (17 280) (9 678)
(Loss)/profit before taxation (8 318) 26 051
Taxation (5 236) (8 217)
(Loss)/profit after taxation (13 554) 17 834
from continuing operations
Loss from discontinued (74) (772)
operations (net of taxation)
(Loss)/profit for the year (13 628) 17 062
Attributable to:
Equity holders of Set Point (14 060) 16 224
Minority interests 432 838
(13 628) 17 062
Basic (loss)/earnings per share (4.6) 6.7
(cents)
Diluted (loss)/earnings per (4.6) 6.6
share (cents)
Calculation of headline earnings
Loss/(profit) attributable to (14 060) 16 224
equity holders of Set Point
Adjusted for: 15 711 246
Loss/(profit) on disposal of 563 (433)
property, plant and equipment
Impairments 16 937 679
17 500 246
Taxation effect of the above (1 789) -
Headline earnings 1 651 16 470
Headline earnings per share 0.5 6.8
(cents)
Diluted headline earnings per 0.5 6.7
share (cents)
Shares in issue
Weighted average number of 302 961 242 619
ordinary shares in issue (000"s)
Fully diluted weighted average 304 843 246 814
number of ordinary shares in
issue (000"s)
**Goodwill impairment is reflected net of an expected vendor claim
included in non-current receivables and which has been valued at balance
sheet date at R28,5m.
Condensed consolidated statement of changes in equity
Reviewed Audited year
year ended ended
31 August 31 August
2006 2005
R000 R000
Opening balances 87 422 64 221
Recognised income and expense
(Loss)/profit for the year (14 060) 16 224
attributable to equity holders
of Set Point
Transactions with shareholders
Share based compensation - share 45 21
options
Share based payment - BEE - 1 715
transaction
Dividends (8 921) (3 639)
Treasury shares issued 1 552 35
Shares acquired by share trust (95) -
Shares issued 56 387 13 790
Minority equity transactions (2 053) (4 945)
Equity attributable to equity 120 277 87 422
holders of Set Point
Minority interests 389 724
Total equity 120 666 88 146
Reconciliation between IFRS and
previous SA GAAP
Profit attributable to equity
holders of Set Point
Previously reported under SA 17 831
GAAP
Transition to IFRS
IAS 16 - Prospective 182
depreciation adjustments
Tax adjustment on the above (53)
IFRS 2 - Share based (21)
compensation - share options
IFRS 2 - Share based payment - (1 715)
BEE transaction
As reported under IFRS 16 224
31 August 1 September
2005 2004
R000 R000
Reconciliation of total equity
Previously reported under SA 86 964 63 892
GAAP
IAS 16 - Prospective 645 463
depreciation adjustments
Tax adjustment (187) (134)
As reported under IFRS 87 422 64 221
Consolidated balance sheets
Reviewed Audited
31 August 31 August
2006 2006
R000 R000
Assets
Non-current assets 130 757 137 178
Property, plant and equipment 31 805 26 231
Goodwill 45 480 84 162
Intangible assets 12 206 15 898
Receivables* 33 486 339
Deferred taxation 7 780 10 548
Current assets 171 567 119 030
Inventories 50 623 36 759
Trade and other receivables 77 673 59 047
Cash and cash equivalents 43 271 23 224
Total assets 302 324 256 208
Equity and liabilities
Total equity 120 666 88 146
Share capital 3 367 2 777
Share premium 109 433 52 179
Premium on minority equity (6 998) (4 945)
transactions
Share based payment reserve 1 781 1 736
Retained earnings 12 694 35 675
Capital and reserves of Set 120 277 87 422
Point equity holders
Minority interests 389 724
Non-current liabilities 23 717 70 706
Deferred purchase consideration 9 479 56 304
Interest bearing liabilities 14 238 14 402
Current liabilities 157 941 97 356
Interest bearing liabilities 4 970 6 246
Trade and other payables 90 522 65 207
Taxation liability 225 5 233
Bank overdraft 62 224 20 670
Total equity and liabilities 302 324 256 208
*Non-current receivables
Included in non-current
receivables is an amount of
R28,5m which is the estimated
fair value at balance sheet date
of the claim of R43m which the
company expects to have against
the vendors of the business of
Seran. The recognition of the
receivable has been limited to
the market value of 30m Set
Point shares at the reporting
date, pledged to secure the claw
back claim.
Shares in issue (net of treasury 336 740 277 619
shares) (000"s)
Net asset value per share 35.72 31.49
(cents)
Net debt-equity ratio (excluding 31.62 20.53
deferred purchase consideration)
Net debt-equity ratio (including 39.48 84.40
deferred purchase consideration)
The net debt equity ratios are calculated using the interest bearing
borrowings, including the bank overdraft, net of any positive cash
balances divided by the capital and reserves attributable to Set Point
equity holders.
Condensed consolidated cash flow statements
Reviewed Audited year
year ended ended
31 August 31 August
2006 2005
R000 R000
Cash flows from operating (4 445) 24 108
activities
Cash generated by operations 19 413 39 507
Net finance costs (5 466) (4 006)
Taxation paid (8 704) (7 244)
Dividends paid (9 688) (4 149)
Cash flows from investing (18 255) (28 537)
activities
Acquisition of business net of (5 418) (19 196)
overdraft assumed
Increase in investments - (5 637)
Net replacement of property, (12 837) (3 704)
plant and equipment
Cash flows from financing (1 737) 4 161
activities
Discontinued operations 2 930 -
Cash and cash equivalents
Net cash utilized (21 507) (268)
At beginning of the year 2 554 2 822
At end of year (18 953) 2 554
Bank overdraft (62 224) (20 670)
Cash and cash equivalents 43 271 23 224
Condensed segmental information
Segment Segment Impairment
Assets liabiliti of
es intangible
assets Segment revenue
R000 R000 R000 R000 %
Analytical 97 705 21 392 - 68 063 21.7
services
Fluid Handling 84 036 47 782 917 113 951 36.3
Instrumentation 27 744 8 041 2 029 5 484 1.7
Mining 103 715 90 154 13 991 135 580 42.7
Central 102 906 83 499 - - -
Services
Consolidation (113 782) (69 210) - (7 413) (2.4)
entries,
adjustments and
intra group
elimination
302 324 181 658 16 937 315 665 100
Condensed segmental information (contd)
Segment result
Analytical 23 559 676.0
services
Fluid Handling 22 578 647.9
Instrumentation (4 178) (119.9)
Mining (23 978)*** (688.0)
Central (14 383) (415.7)
Services
Consolidation (9) (0.3)
entries,
adjustments and
intra group
elimination
3 589 100
*** This is after R14m of net impairments to intangibles in Seran.
Review of operations
Profile
Set Point has three core activities:
- Analytical Services operates through specialised laboratories which
offer expert analysis for the precious metals exploration industry and
for condition monitoring of fluids.
- Fluid Handling supplies medium technology products and services to
the petrochemical and mining industries.
- Mining Technologies comprises the manufacture, supply and repair of
patented equipment and the provision of services to the mining industry.
Withdrawal of Cautionary Announcement
Shareholders are referred to the cautionary announcement dated 17 October
2006.
Set Point uncovered irregularities at Seran Engineering and Supplies
("Seran") which forms part of Set Point"s Mining Technologies Division.
With the assistance of KPMG"s forensic division, Set Point concluded that
Seran"s revenue and profit has been overstated and that Seran had
incurred an operating loss for the year of R19m. As a result of this it
was also necessary for Set Point to impair Seran"s intangible assets by a
net amount of R14m. The amount of R14m is stated after accounting for an
expected claim against the vendor of Seran which was raised at the year
end in an amount of R28,5m, i.e. the gross impairment of intangibles
amounted to R42,5m. The fair value attributed to the claim has been
based on 30m shares pledged to Set Point as security for the claw back.
Until the claw back is effected and the shares released or cancelled
there will be a further charge or credit to the income statement at each
reporting date arising from movements in the assessment of the fair value
of the claim. No account has been taken at this stage for the balance of
the claw back claim, or other claims against the vendors or certain of
the management of Seran, or possible fidelity insurance claims.
Set Point is implementing the necessary remedial action at Seran.
Certain management members have resigned or have been suspended, Seran"s
project division will be discontinued and its manufacturing and services
divisions will be streamlined. Seran has excellent patents and will
continue to supply first class products and services to the mining
industry with the full support of the Set Point Group. Although Seran is
expected to incur a loss for the first six months of the coming year,
based on the revised business model being implemented by Set Point
management, Seran is expected to achieve profitable results in the second
half of the year.
The cautionary announcement is hereby withdrawn. As a result of the
withdrawal caution is no longer required to be exercised by Set Point
share holders when dealing in their shares.
Financial Results
The Analytical Services Division had an excellent year achieving
operating profit of R24m on revenue of R68m. The Fluid Handling Division
performed strongly reflecting operating profit of R23m on revenue of
R114m.
The Mining Technologies division recording an operating loss of R10m on
revenue of R136m. This was a result of the operating loss of R19m at
Seran. The other two business units in this division performed well and
achieved operating profits of R9m.
Overall, Headline earnings per share ("HEPS") for the year declined to
0,5 cents per share (2005: 6,8 cents per share) and, as a result of the
impairment of intangibles at Seran, earnings per share were negative,
being a loss of 4,6 cents per share (2005: positive 6,7 cents).
Notwithstanding the problems at Seran, non-current and current borrowings
(including deferred purchase consideration), net of cash balances on
hand, reduced from R74m to R48m. Group cash flows are projected to be
positive in the year ahead and net borrowings are expected to reduce
considerably before the next financial year end.
Basis of Preparation
Set Point has adopted International Financial Reporting Standards
("IFRS") for the year ended 31 August 2006. The condensed annual
financial statements have been prepared in accordance with IFRS and
interpretation statements in issue and effective at 31 August 2006, IAS
34 - Interim Financial Reporting and in compliance with the Listing
Requirements of the JSE Limited and the Companies Act of South Africa.
These are Set Point"s first IFRS consolidated financial statements and
IFRS1 - First-time adoption of International Financial Reporting
Standards has been applied. Accounting policies adopted under IFRS have
been applied consistently in preparing the financial statements for the
year ended 31 August 2006, the comparative information for the year ended
31 August 2005 and the opening balance sheet at 1 September 2004.
An explanation of how the transition to IFRS has effected the reported
financial position and financial performance of Set Point is provided
below:
IFRS adjustments implemented
IFRS 2 - Share- based Payment
In accordance with IFRS 2, the group has recognised an expense in the
income statement for share options granted to employees, with a
corresponding credit to equity, representing the fair value of
outstanding employee share options. The fair value at grant date is
charged to profit or loss over the relevant vesting periods, adjusted to
reflect actual and expected vesting levels. Fair value is determined
using the "black scholes" pricing model. The IFRS 1 exemption was
elected, resulting in the inclusion of equity instruments granted after 7
November 2002 that vested after 1 January 2005 in the valuation.
The group has also recognised in the prior period the R1.7m discount, in
the previous results, granted on the issue of 35m ordinary shares in
terms of the BEE transaction as approved at the general meeting of
shareholders held on 29 June 2005.
IAS 16 - 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. 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 on property, plant and equipment.
IFRS 3 - Business combinations
In accordance with IFRS goodwill is no longer amortised but is subject to
annual impairment tests. Set Point has made an election in terms of IFRS1
to apply the requirements of IFRS3 to all business combinations with
effective dates on or after 1 September 2004. The classification and
accounting treatment of business combinations with effective dates prior
to 1 September 2004 has not been considered and previously reported
goodwill has been included on the basis of its deemed cost.
Change in accounting policies
The Seran division engaged in a number of contracts that required a
substantial amount of time to complete. The Group has therefore applied
the requirements of IAS11 - Construction Contracts in accounting for
these contracts. The accounting policy adopted is as follows:
When the outcome of a construction contract can be estimated reliably,
contract revenue and contract costs associated with that construction
contract are recognised as revenue and expenses respectively by reference
to the stage of completion of the contract activity at the balance sheet
date. The stage of completion is generally based on physical progress,
man hours or cost incurred, based on the appropriate method for the type
of contract. To the extent that the outcome of a construction cannot be
reliably measured, revenue is recognised only to the extent that contract
costs incurred are likely to be recovered.
Any expected loss on a construction contract is charged immediately to
the income statement. Construction work in progress is stated at cost
plus profit recognised to date less a provision for foreseeable losses
and less progress billings. Cost includes all expenditure related
directly to specific projects and an allocation of fixed and variable
overheads incurred, in respect of contract activities and based on normal
operating capacity.
Audit Report
The group"s auditors, KPMG Inc, have reviewed these results and their
modified review report dated 30 November 2006 is available for inspection
at the registered office of the company.
The review report and the final audit report will contain a modification
as a result of reportable irregularities identified in the Mining
Technologies division and advised by KPMG Inc to IRBA as required by S45
of the Audit Profession act 26 of 2005. The Directors Report will
contain full details and explanations of these irregularities.
Dividend Policy
The group"s policy has been to declare an interim and final dividend
approximately three times covered by HEPS. An interim dividend of 1 cent
per share was declared for the current financial year. In light of the
substantially lower HEPS recorded by the group than originally projected,
no final dividend will be declared.
Dividends will not be resumed until Seran is cash flow positive. It is
therefore probable that no interim dividend will be declared in the
coming year. The final dividend will be considered relative to the
Group"s cash flow and strength of balance sheet at the time.
Prospects
Set Point expects a weaker performance in the first six months of the
year compared with that reported in the prior period but a stronger
performance for the forthcoming year as a whole. All operations other
than Seran are producing sound results in line with budgets and Set Point
anticipates that Seran will be profitable after the interim reporting
date.
The setback at Seran has been unfortunate but has not changed the group"s
strategy. Future growth will be achieved organically, and acquisitions
will be considered again once Seran, like all of the group"s other
businesses, is profitable and cash flow positive.
CHRISTOPHER SEABROOKE ERROL GREGOR
NON-EXECUTIVE CHAIRMAN CHIEF EXECUTIVE OFFICER
30 November 2006
Directors: CS Seabrooke*# (Chairman), MJ Smith (Deputy Chairman),
EG Gregor (Chief Executive Officer), Dr DE Baloyi*#, GJ Horsfield, BH
Kent*#, JM Judin*, GE Nel* (* Non-executive) (# Independent), Company
Secretary: ND Kennelly
Registered Office: 30 Electron Avenue, Isando 1601, (PO Box 856 Isando
1600)
Transfer Secretaries: Computershare Investor Services 2004 (Pty) Limited
(Reg no: 1958/003546/06), Ground Floor, 70 Marshall Street,
Johannesburg, 2001 (PO Box 61051, Marshalltown 2107)
Sponsor: Investec Bank Limited, Registration number 1969/004763/06
www.setpoint.co.za
Date: 30/11/2006 05:13:42 PM Produced by the JSE SENS Department
