Johannesburg - Pinnacle Technology lifted revenue 13 percent to R6.6 billion for the year to June, but suffered a sharp decline to a negative cash flow position due to an overestimation in inventories and the acquisition of a large stake in Datacentrix, the company said yesterday.
The group’s tax rate had also increased to 28.3 percent from an unusually low 25.3 percent. The information technology group said it expected the tax rate to deteriorate further due to the issue of R130 million in preference shares by a subsidiary to Nedbank.
The increase in tax eroded strong growth in earnings before tax, it said.
Headline earnings grew 16 percent but the repurchase of shares resulted in a reduction in the weighted average number of shares in issue, pushing headline earnings a share up by 17.4 percent to R2.056.
Richard Lyon, the group chief financial officer, expected the tax rate to be in excess of the 28 percent over the next 12 months but did not expect it to reach the mid-thirties. “It is dependent on how we deal with our acquisitions generally.”
Pinnacle, the manufacturer of Proline computers, paid R237.3m out of its existing facilities to buy a 29.79 percent stake in information technology (IT) services firm Datacentrix in June.
Lyon said if the Competition Commission rejected the transaction, Pinnacle’s money would be returned. If the deal was approved, the company would have to reconfigure the structure of its business and the acquisition.
Keith McLachlan, an equity analyst at Thebe Securities, said there was “arguably a lot of value to be extracted” from the alignment between Datacentrix and Pinnacle, which already provided products to the former. He added that Pinnacle could “layer on further services” and had the ability to leverage the large group but knitting all the pieces together could be a challenge.
Weakness in consumer spending and the group’s slightly stretched balance sheet were more immediate challenges facing the group in the short term, he said.
Pinnacle, one of the largest local providers of IT products and solutions, recently acquired Modrac and Precision IT, which manufacture electronic enclosures. Pinnacle will combine the businesses with another new acquisition, JAG Engineering, to give the group significant capacity in the manufacture of electronic enclosures.
Devtrade, an electronic security products provider, was also bought during the year.
“We’re not looking at anything else until we’ve resolved the Datacentrix position. If we get the green light then that will be sufficient for our [acquisition] strategy,” Lyon added.
He explained that while Pinnacle was active in the distribution of devices and software it did not have significant competency in providing IT services. This was a capability that Datacentrix had evolved towards.
Cash generated by operating activities declined to R125m in the year to June from R192.5m for the previous comparable period. The net overdraft at the end of the year increased to R246.5m from R140.2m previously.
Cash flow was affected by an increase of R253m in inventories, which increased the days purchases in inventory from 46 to 66. This was because the company overestimated the size of the tablet market and experienced delays in orders on the retail side. The excess inventory would be resolved by the end of this month, it said.
Shares closed 2.52 percent higher at R24.40 yesterday. - Business Report