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PNC
PNC
PNC - Pinnacle - Unaudited interim results for the six months ended 31 December
2006
Pinnacle Technology Holdings Limited
(Registration number 1986/000334/06)
Share code: PNC
ISIN: ZAE000022570
("Pinnacle" or "the Group")
www.pinnacle.co.za
UNAUDITED INTERIM RESULTS for the six months ended 31 December 2006
HIGHLIGHTS
- Turnover increased by 87% to R729 million
- EBITDA increased by 109% to R54 million
- Headline earnings increased by 84% to 22,5 cents per share
GROUP INCOME STATEMENT
6 months 6 months 12 months
ended ended ended
31 Dec 31 Dec 30 Jun
2006 2005 2006
Unaudited Unaudited Audited
R`000 R`000 R`000
Revenue 728 867 390 736 1 060 793
Cost of sales (615 082) (326 042) (893 708)
Gross profit 113 785 64 694 167 085
Operating expenses (59 592) (43 416) (104 793)
Recovery of bad debt - 5 159 5 159
BEE transaction charges - - (50 330)
EBITDA 54 193 26 437 17 121
Depreciation (2 381) (2 718) (4 426)
Impairment of intangible assets (519) (470) (709)
Operating (loss)/profit before
interest 51 293 23 249 11 986
Investment income 2 513 1 759 5 051
Finance costs (4 883) (1 565) (4 619)
Net profit before taxation 48 923 23 443 12 418
Taxation (15 902) (6 643) (18 688)
Net profit for the period 33 021 16 800 (6 270)
Attributable to:
Ordinary equity shareholders 32 825 17 177 (6 211)
Minority shareholders 196 (377) (59)
Performance per share
Earnings per share (cents)
- Normal 22,1 11,9 (4,3)
- Fully diluted 17,7 11,9 (4,0)
Headline earnings per share (cents)
- Normal 22,5 12,2 30,8
- Fully diluted 18,5 12,2 29,5
Reconciliation of headline earnings
Net profit for the period
attributable to ordinary equity
shareholders 32 825 17 177 (6 211)
Add back
- BEE transaction charges - - 50 330
- Impairment of intangible
assets 519 470 709
Headline earnings - normal 33 344 17 647 44 828
Add back
- Deemed finance charges less
taxation 1 022 - 881
Headline earnings - Fully
diluted 34 366 17 647 45 709
Weighted average number of
shares in issue
- Normal (`000) 148 425 144 109 145 738
- Fully diluted (`000) 185 707 144 109 154 727
Returns % % %
Gross profit 15,6 16,6 15,8
EBITDA 7,4 6,8 1,6
Net profit 4,5 4,3 (0,6)
SEGMENTAL REPORT
6 months 6 months 12 months
ended ended ended
31 Dec 31 Dec 30 Jun
2006 2005 2006
Unaudited Unaudited Audited
R`000 R`000 R`000
Revenue
Infrastructure and support 435 110 277 865 697 438
Software 239 362 109 026 353 148
Pinnacle Africa 47 009 - -
ICT services 7 386 3 845 10 207
Holdings and properties - - -
Total Group 728 867 390 736 1 060 793
EBITDA
Infrastructure and support 37 960 14 818 40 724
Software 13 581 6 180 21 226
Pinnacle Africa 1 182 - -
ICT services 2 215 1 225 3 278
Holdings and properties (745) 4 214 (48 107)
Total Group 54 193 26 437 17 121
Assets
Infrastructure and support 288 821 180 704 334 207
Software 168 317 67 570 206 638
Pinnacle Africa 29 605 - -
ICT services 12 212 6 045 9 269
Holdings and properties 48 050 37 715 40 410
Total Group 547 005 292 034 590 524
Liabilities
Infrastructure and support (234 936) (161 319) (302 517)
Software (150 299) (68 197) (197 759)
Pinnacle Africa (26 042) - -
ICT services (9 727) (5 179) (7 493)
Holdings and properties 50 851 65 669 71 502
Total Group (370 153) (169 026) (436 267)
GROUP BALANCE SHEET
31 Dec 31 Dec 30 Jun
2006 2005 2006
Unaudited Unaudited Audited
R`000 R`000 R`000
Assets
Non-current assets 101 647 67 282 93 066
Property, plant and equipment 44 213 41 403 44 081
Intangible assets 39 931 19 731 40 359
Interest in subsidiaries 4 478 - -
Trust loans 12 120 3 220 3 364
Deferred taxation 905 2 928 5 262
Current assets 445 358 224 752 497 458
Inventories 177 446 81 983 119 384
Trade and other receivables 220 937 125 902 211 884
Cash and cash equivalents 46 975 16 867 166 190
Total assets 547 005 292 034 590 524
EQUITY AND LIABILITIES
Capital and reserves 175 319 121 656 152 765
Share capital and premium 184 318 126 155 184 323
Treasury shares - (1 400) (6 572)
Non-distributable reserves 5 208 8 962 8 987
Put option 1 910 - 1 910
Accumulated loss/(profit) (16 117) (12 061) (35 883)
Minority shareholders`
interest 1 533 1 352 1 492
Non-current liabilities 39 126 1 644 46 588
Interest-bearing liabilities 39 126 1 644 46 588
Current liabilities 331 027 167 382 389 679
Trade and other payables 284 958 138 339 336 419
Short-term loans - 9 828 -
Current portion of
interest-bearing liabilities 10 670 8 055 27 805
Warranty provisions 8 302 7 335 8 466
Taxation 27 097 3 825 16 989
Total equity and liabilities 547 005 292 034 590 524
Valuation per share
Net asset value per share
(cents) 94,7 83,1 84,2
Net tangible asset value
per share (cents) 73,3 69,7 62,2
Number of ordinary shares
in issue at the end of
the period (`000) 186 834 148 096 183 160
Working capital management
Inventory days 52,8 46,0 42,5
Debtors days 48,7 51,7 56,5
Liquidity and solvency
Debt ratio 14,0 177,6 12,7
Current asset ratio 1,35 1,34 1,28
Acid test ratio 0,81 0,85 0,97
SUMMARISED GROUP CASH FLOW STATEMENT
6 months 6 months 12 months
ended ended ended
31 Dec 31 Dec 30 Jun
2006 2005 2006
Unaudited Unaudited Audited
R`000 R`000 R`000
Cash flow from operations (72 247) (17 151) 102 377
Cash flow from investing
activities (6 983) (17 319) (41 862)
Cash flow from financing
activities (39 985) (11 228) 43 110
Increase in cash and
cash equivalents (119 215) (45 698) 103 625
Cash and cash equivalents
at the beginning of the
period 166 190 62 565 62 565
Cash and cash equivalents
at the end of the
period 46 975 16 867 166 190
STATEMENT OF CHANGES IN EQUITY
Share Share Put Treasury
capital premium option shares
R`000 R`000 R`000 R`000
GROUP
Balance at
30 June 2005 1 492 124 602 - (4 138)
Issue of shares 2 59 - -
Net profit for the year - - - -
Treasury shares issued - - - 2 738
Profit on sale of
subsidiary - - - -
Dividends declared - - - -
Movement in foreign
currency translation
reserve - - - -
Balance at 31 December
2005 - Unaudited 1 494 124 661 - (1 400)
Issue of shares 374 36 058 - -
Amabubesi Investments
(Pty) Limited - (1 910) 1 910 -
Financial liability - (26 684) - -
Net profit for the year
as previously reported - - - -
BEE transaction charges - 50 330 - -
Treasury shares bought - - - (6 398)
Treasury shares issued - - - 1 226
Treasury shares bought - - - -
Dividends declared - - - -
Reallocation of
shareholder`s loan - - - -
Movement in foreign
currency translation
reserve - - - -
Balance at 30 June
2006 - Audited 1 868 182 455 1 910 (6 572)
Issue of shares 1 28 - -
Share issue expenses - (34) - -
Net profit for the year - - - -
Treasury shares bought - - - 9 387
Treasury shares issued - - - (2 815)
Deferred tax on deemed
interest - - - -
Dividends declared - - - -
Movement in foreign
currency translation
reserve - - - -
Balance at 31 December
2006 - Unaudited 1 869 182 449 1 910 -
STATEMENT OF CHANGES IN EQUITY
Non- Ordinary
distri- Accumu- share-
butable lated holders` Minority Total
reserves loss total interest equity
R`000 R`000 R`000 R`000 R`000
GROUP
Balance at
30 June 2005 9 729 (24 563) 107 122 2 590 109 712
Issue of
shares - - 61 (528) (467)
Net profit for
the year - 17 177 17 177 (377) 16 800
Treasury shares
issued - - 2 738 - 2 738
Profit on
sale of
subsidiary (801) 801 - - -
Dividends
declared - (5 476) (5 476) (333) (5 809)
Movement in
foreign
currency
translation
reserve 34 - 34 - 34
Balance at
31 December
2005
- Unaudited 8 962 (12 061) 121 656 1 352 123 008
Issue of
shares - - 36 432 (275) 36 157
Amabubesi
Investments
(Pty) Limited - - - - -
Financial
liability - - (26 684) - (26 684)
Net profit for
the year as
previously
reported - 26 942 26 942 318 27 260
BEE transaction
charges - (50 330) - - -
Treasury shares
bought - - (6 398) - (6 398)
Treasury shares
issued - - 1 226 - 1 226
Treasury shares
bought 74 - 74 (74) -
Dividends
declared - (434) (434) - (434)
Reallocation of
shareholder`s
loan - - - 171 171
Movement in
foreign
currency
translation
reserve (49) - (49) - (49)
Balance at
30 June 2006
- Audited 8 987 (35 883) 152 765 1 492 154 257
Issue of
shares - - 29 (58) (29)
Share issue
expenses - - (34) - (34)
Net profit
for the year - 32 825 32 825 196 33 021
Treasury shares
bought - - 9 387 - 9 387
Treasury shares
issued - - (2 815) - (2 815)
Deferred tax
on deemed
interest (3 799) - (3 799) - (3 799)
Dividends
declared - (13 059) (13 059) (97) (13 156)
Movement in
foreign
currency
translation
reserve 20 - 20 - 20
Balance at
31 December
2006
- Unaudited 5 208 (16 117) 175 319 1 533 176 852
Comments
Operational overview
The Pinnacle Group continues to benefit from strong local and international
economies, a stable Rand and the culmination of past and ongoing initiatives to
diversify the product range and distribution channels available to the Group.
The ongoing integration of Explix Technologies and Pinnacle Micro into a
cohesive distribution business unit has given critical mass to Pinnacle Africa
styled offices in Botswana, Namibia, Zambia and Mozambique. Branches in Port
Elizabeth, Cape Town, Durban and Midrand have been consolidated and co-branded.
The diverse ERP systems of the Group are being consolidated to further exploit
potential synergies.
Compared to the corresponding period between July and December 2005,
Infrastructure and Support has grown by 57%, Software by 120% and ICT Services
by 92%.
Working capital continues to be a focus point of the Group and trade receivable
days have reduced from 56,5 days at June 2006 to 48,7 days. Days inventory on
hand at 52,8 days (June 2005: 42,5 days) were necessitated to ensure pipeline
commitments for Q1 2007 are fulfilled and are within management`s expectations.
Inventory levels are expected to reduce to 45 days by the end of the financial
year. Terms with creditors have been reduced to further improve margins with a
resultant decrease in working capital.
R13 million (2005: R6 million) was returned to shareholders by way of a 7 cent
per share dividend. Income tax and STC to the value of R5,6 million was remitted
during the six months to December. R24 million was paid in cash and treasury
shares on liabilities incurred to procure the remaining shareholding in Explix
Technologies, resulting in an overall decrease in cash reserves.
Current assets to current liabilities (working capital ratio) remains strong at
1,35 (2005: 1,34), whilst the acid test ratio has decreased marginally to 0,81
(2005: 0,85).
Corporate activity
Pinnacle acquired 50,1% of DataNet Infrastructure Group (Pty) Limited
("DataNet") on 6 October 2006. As a network infrastructure distributor, DataNet
provides cabinets, cabling and networking peripherals to resellers and
installers in the South African market.
The results of DataNet have not been consolidated into these unaudited interim
Group results as the take-on balances at
6 October 2006 are being finalised. The omission of DataNet`s results is not
considered to have a material impact on the results of the Group.
Financial review
Revenue increased by 87% to R729 million (2005: R391 million) on the
consolidation of 100% of Explix Technologies, focused product offering and
penetration of retail markets. Organic growth, as determined by excluding the
consolidation of 50% of Explix Technologies, accounted for 56% of the increase
in revenue.
Gross profit reduced to 15,6% (2005: 16,5%) on the dilution of margin
contribution by Explix Technologies, but is expected to improve in the latter
part of the year.
Operating expenses reduced to 8,2% (2005: 11,2%) of revenue as cost containment
strategies and synergies between Pinnacle and Explix Technologies were realised.
Headline earnings per share is calculated as a measure of trading
performance and excludes profit and losses on capital items. The BEE transaction
charge reflected in the comparative results for the twelve months ended 30 June
2006 is therefore added back in the reconciliation of headline earnings.
Intangible assets to the value of R519 000 were impaired in line with the
determination of recoverable amount requirements of IAS36 - Impairment of
Assets.
Trust loans increased to R12 million (2005:R3,2 million) as 4,35 million share
options were issued to key staff. Under the terms of the Pinnacle employee
trust, the share options shall vest after the expiry of a minimum of three
years.
Deferred taxation was reduced by R3,8 million on recognition of a liability that
may occur on the early settlement of the non-current liability described below.
The deferred taxation liability was raised against non-distributable reserves.
Inventory increased to R177 million (2005: R82 million) partly due to the
increase in turnover as well as the additional investment in stock required as
described in the operational overview.
Trade and other receivables increased to R221 million (2005: R126 million) with
trade receivable days reducing to 48,7 days (2005: 51,7 days).
Non-current liabilities - A financial liability to the value of R27,4 million
was created to fulfil International Financial Reporting Standards ("IFRS")
requirements relating to the put option offered to Amabubesi Investments (Pty)
Limited ("Amabubesi"). The financial liability is equal to the present value of
the potential repayment that may be paid to Amabubesi, should the Group 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
- Financial Instruments: Recognition and Measurement which, legally and
commercially, will not be paid.
Outlook
Various technologies are being considered to offer perpetual data connectivity
solutions in technology markets. Wi-Max or 4G is viewed by many as the mobile
solution of the future whilst 4 Gigabyte ADSL will introduce true broadband in
fixed line applications.
The availability of broadband solutions at affordable rates is expected to
introduce new communication, entertainment and management technologies to
corporate and private clients, inevitably driving the demand for technology
software, hardware and services.
The technology requirements to enable efficient and secure use of connectivity
solutions will be met by the product suite and services available to clients
within the Pinnacle Group.
Under the guidance of the African renaissance programme, NEPAD, school
laboratories in Mauritius and Rwanda 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.
64-bit technologies have been released by Intel, AMD and Microsoft and first
adoption rates have indicated that the technologies are being accepted in the
market.
The Group has received orders from various institutions for delivery in Q1 2007.
These orders are expected to notably contribute to the operating results of the
period ending 30 June 2007.
The fiscal policies effected by the South African Reserve Bank are expected to
continue for the remainder of the financial year. The changes in the economic
climate that may result, warrants the need for caution.
Accounting policies
In terms of the Listings Requirements of the JSE Limited ("JSE"), the interim
results have been prepared in accordance with IFRS IAS34 - Interim Financial
Reporting, the Listing Requirements of the JSE and the South African Companies
Act.
The Group adopted and applied IFRS for the first time for the year ended 30 June
2006.
The Group adopted IFRIC8 - Scope of IFRS2, and AC503 - Accounting for Black
Economic Empowerment Transactions, both of which are effective for the June 2007
financial year-end. These standards address the accounting treatment of
transactions where equity was issued at a value less than the fair value of the
financial instrument. During 2006, 37 281 647 Pinnacle Technology Holdings
Limited shares were issued at R1,00 per share to Amabubesi Investments (Pty)
Limited, necessitating a non-cash flow charge of R50 330 223 to the comparative
values in the income statement. Where required, comparative figures have been
restated to reflect this transaction.
Broad-based Black Economic Empowerment
Pinnacle and Amabubesi concluded an agreement in terms of which Amabubesi has
subscribed for 20% of the total issued share capital of Pinnacle and appointed
two representatives to the Pinnacle Board.
Mr TAM Tshivhase, an executive director, holds 3,75% of the issued share capital
of the Group. Historically disadvantaged individuals have, through natural trade
on the JSE, acquired a further 5,65% of the issued share capital of the Group.
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.
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 Report.
Subsequent events
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.
Dividends
No interim dividend is proposed for the period under review.
For and on behalf of the Board
CD Biddlecombe AJ Fourie Midrand
Chairman Chief Executive Officer 23 February 2007
Registered Office: The Summit, 269, 16th Road, Randjespark, Midrand
Transfer Secretaries: Computershare Investor Services 2004 (Pty) Limited, Ground
Floor, 70 Marshall Street, Johannesburg 2001
Directors: CD Biddlecombe* (Chairman), AJ Fourie (Chief Executive Officer), H
Coetzee (Chief Financial Officer), HG Motau*, PM Moyo*, TAM Tshivhase (Executive
Director), A Tugendhaft* * (Non-executive)
Sponsor: Deloitte & Touche Sponsor Services (Pty) Limited
Auditors: BDO Simama Inc, 13 Wellington Road, Parktown 2193
Date: 23/02/2007 07:00:01 Produced by the JSE SENS Department.
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