PINNACE MICRO PROPRIETARY LIMITED (REGISTRATION NUMBER 1993/000917/07) ANNUAL FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2014

Transcription

1 PINNACE MICO POPIETAY LIMITED (EGISTATION NUMBE 1993/000917/07) ANNUAL FINANCIAL STATEMENTS FO YEA ENDED 30 JUNE 2014

2 General Information Country of incorporation Nature of business and principal activities Directors Business & egistered address South Africa The company carries on the business of assembly and distribution of computer merchandise. A.J. Fourie G.J. Wiehahn H. Ferreira I.N. Steyn L. Fourie.D. Lyon S. Marx T. Van Zyl T.P. Humphreys-Davies The Summit 269, 16th Street andjespark Midrand 1685 Postal address PO Box 483 Halfway House Midrand 1685 Holding company Ultimate holding company Bankers Auditors Pinnacle Treasury Services Limited Pinnacle Holdings Limited First National Bank BDO South Africa Incorporated Company registration number 1993/000917/07 Level of assurance Preparer These Annual Financial Statements have been audited in terms of Section 30(2)(b)(ii) of the Companies Act of South Africa as read with egulation 28(2)(c) as its public interest score exceed 350, and in terms of the JSE Listing equirements Schedule 10.22, as it a subsidiary of a listed entity. The financial statements were internally prepared under supervision of G.J. Wiehahn (CA) SA. Published 30 September 2014

3 Index INDEX PAGE Directors' responsibility and approval 3 eport of the directors 4-5 eport of the independent auditor 6 Statement of Financial Position 7 Statement of Profit and Loss and Other Comprehensive Income 8 Statement of Changes in Equity 9 Statement of Cash Flows 10 Accounting Policies Notes to the annual financial statement The following supplementary information does not form part of the financial statements and is unaudited: Detailed income statement

4 Directors' esponsibilities and Approval The directors are required by the Companies Act of South Africa to maintain adequate accounting records and are responsible for the content and integrity of the annual financial statements and related financial information included in this report. It is their responsibility to ensure that the annual financial statements fairly present the state of affairs of the company as at the end of the financial year and the results of its operations and cash flows for the period then ended, in conformity with International Financial eporting Standards. The external auditors are engaged to express an independent opinion on the annual financial statements. The annual financial statements are prepared in accordance with International Financial eporting Standards and are based upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgments and estimates. The directors acknowledge that they are responsible for the system of internal financial control established by the company and set standards for internal control aimed at reducing the risk of error or loss in a cost effective manner. The standards include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. The directors are of the opinion, based on the information and explanations given by management, that the system of internal control provides reasonable assurance that the financial records may be relied on for the preparation of the financial statements. The directors have reviewed the company's cash flow forecast for the 12 months since the date of approval of the annual financial statements, in light of this reviewed current financial position, they are satisfied that the company has or has access to adequate resources to continue in operational existence for the foreseeable future. The annual financial statements have been examined by the company's external auditors and their report is presented on page 6. The annual financial statements which appear on pages 4 to 41, which have been prepared on a going concern basis, were approved by the board of directors on 30 September 2014 and were signed on its behalf by: Director Director 3

5 Directors' eport The directors submit their report for the year ended 30 June eview of activities Main business and operations The company is engaged in the assembly and distribution of computer merchandise and any related business and operates principally in South Africa. The operating results and state of affairs of the company are fully set out in the attached annual financial statements and do not in our opinion require any further comment. 2. Authorised and issued share capital There were no changes in the authorised and issued share capital of the company during the year under review (2013: Nil). 3. Events subsequent to year end The directors are not aware of any material matter or circumstance arising since the end of the financial year that requires any further comments to the date of this report. 4. Dividends Dividends declared and paid in the current financial year of (2013: Nil). 5. Directors The directors of the company during the year and to the date of this report are as follows: Name Changes A.J. Fourie None.D Lyon None G.J. Wiehahn None H. Ferreira appointed 19/05/2014 I.N. Steyn None L. Fourie None S. Marx None T. Van Zyl None T.A.M. Tshivhase resigned 04/04/2014 T.P. Humphreys-Davies None 6. Secretary The secretary of the company is J.V. Parkin whose business and postal address is as follows: Business address Postal address The Summit PO Box , 16th Street Halfway House andjespark Midrand Midrand

6 Directors' eport 7. Holding Company The company's holding company is Pinnacle Treasury Services Limited incorporated in South Africa. 8. Ultimate Holding Company The company's ultimate holding company is Pinnacle Holdings Limited incorporated in South Africa and listed on the JSE. 9. Going Concern The directors have considered the working capital requirements of the company for the 12 months from the date of the approval of the annual financial statements and have no reason to believe the business will not be a going concern in the year ahead. 10. Auditors BDO South Africa Incorporated will continue in office in accordance with section 90(1) of the Companies Act of South Africa. 5

7 eport of the independent auditor To the shareholders of Pinnacle Micro Proprietary Limited We have audited the financial statements of Pinnacle Micro Proprietary Limited set out on pages 7 to 38, which comprise the statements of financial position as at 30 June 2014, and the statements of profit or loss and other comprehensive income, statements of changes in equity and statements of cash flows for the year then ended, and the notes, comprising a summary of significant accounting policies and other explanatory information. Directors' esponsibility for the Financial Statements The company s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial eporting Standards and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's esponsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Pinnacle Micro Proprietary Limited as at 30 June 2014 and its financial performance and cash flows for the year then ended in accordance with International Financial eporting Standards, and the requirements of the Companies Act of South Africa. Other reports required by the Companies Act of South Africa As part of our audit of the financial statements for the year ended 30 June 2014, we have read the Directors eport for the purpose of identifying whether there are material inconsistencies between this report and the audited financial statements. This reports is the responsibility of the respective preparers. Based on reading this report we have not identified material inconsistencies between this report and the audited financial statements. However, we have not audited this report and accordingly do not express an opinion on this report. BDO South Africa Incorporated Per: H Bhaga-Muljee Director egistered Auditor Date: 30 September2014 6

8 Statement of Financial Position NOTE(S) ASSETS Non - current assets 16,741,568 27,593,777 Property, plant and equipment 2 10,811,231 18,273,233 Intangible assets 3 59,075 59,075 Deferred taxation 5 5,871,262 9,261,469 Current assets 1,285,341,133 1,119,371,404 Amounts owing by group companies 4 174,736,593 88,435,783 Inventories 6 563,303, ,748,079 Trade and other receivables 7 519,826, ,805,094 Taxation receivable 18,310,725 - Cash and cash equivalents 8 9,163,267 20,382,448 Total assets 1,302,082,701 1,146,965,181 EQUITY AND LIABILITIES Equity capital and accumulated profit 447,292, ,488,779 Share capital Non - distributable reserve 25 4,148,409 4,148,409 Accumulated profit 443,143, ,340,270 Non - current liabilities Instalment sale liabilities , ,411 Current liabilities 854,591, ,227,991 Amounts owing to group companies 4 76,663,268 - Bank overdraft 8 160,950, ,609,169 Instalment sale liabilities 10 42, ,903 Trade and other payables ,935, ,445,153 Deferred evenue ,360,310 Taxation - 9,656,456 Total equity and liabilities 1,302,082,701 1,146,965,

9 Statement of Profit or Loss and Other Comprehensive Income NOTE(S) evenue 14 3,420,749,899 2,948,840,309 Cost of sales 15 (3,040,099,655) (2,532,188,807) Gross profit 380,650, ,651,502 Other operating income 16 26,963,206 34,698,777 Operating expenses (283,864,233) (251,453,861) Selling expenses (35,281,337) (21,592,148) Employee expenses (148,042,163) (148,939,867) Admin expenses (95,853,247) (76,017,549) Depreciation (4,687,486) (4,904,297) Operating profit ,749, ,896,418 Investment income ,192 8,818,138 Interest paid 19 (24,307,897) (16,059,305) Profit before taxation 99,877, ,655,251 Taxation 20 (25,074,148) (54,355,677) Profit for the year 74,803, ,299,574 Other comprehensive income - - Total comprehensive income 74,803, ,299,574 Dividend per share (in cents per share) 70,000,000-8

10 Statement of Change in Equity Share Share based Total capital Payment eserve Accumulated profit Balance at 1 July ,040, ,040,796 Total comprehensive income for the year ,299, ,299,574 Equity-based compensation reserve - 4,148,409-4,148,409 Balance at 30 June ,148, ,340, ,488,779 Total comprehensive income for the year ,803,364 74,803,364 Dividend paid - - (70,000,000) (70,000,000) Balance at 30 June ,148, ,143, ,292,143 Note(s)

11 Statement of Cash Flows NOTE(S) Cash flows from operating activities 116,563,752 14,821,058 Cash generated (utilised) from operating activities ,086,579 71,631,652 Interest received ,192 8,818,138 Finance costs 19 (24,307,897) (16,059,305) Normal taxation paid 24.2 (49,651,122) (49,569,427) Cash flows from investing activities (80,623,435) (66,969,099) Expenditure to maintain operating capacity Purchase of property, plant and equipment (3,612,152) (3,671,935) Proceeds of the disposal of property, plant and equipment 9,289, ,305 Advances to group companies (86,300,810) (63,610,469) Cash flows from financing activities 6,498,877 (365,916) Proceeds from loans from group companies 76,663,268 - epayment of instalment sale liabilities (164,391) (365,916) Dividends paid (70,000,000) - Net increase in cash and cash equivalents 42,439,194 (52,513,957) Cash and cash equivalents at the beginning of the year (194,226,721) (141,712,764) Cash and cash equivalents at the end of the year 8 (151,787,527) (194,226,721)

12 Accounting Policies 1. Presentation of the Annual Financial Statements The annual financial statements have been prepared in accordance with International Financial eporting Standards, and the Companies Act of South Africa. The annual financial statements have been prepared on the historical cost basis, and incorporate the principal accounting policies set out below. They are presented in South African ands. These financial statements incorporate accounting policies that have been consistently applied, except for the changes set out as per note Significant judgments and sources of estimation uncertainty In preparing the annual financial statements, management is required to make estimates and assumptions that affect the amounts represented in the annual financial statement and related disclosures. Use of available information and the application of judgement is inherent in the formation of estimates. Actual results in the future could differ from these estimates which may be material to the annual financial statements. Significant estimates and assumptions include: Trade receivables and Loans and receivables The Company assesses its trade receivables and loans and receivables for impairment at the end of each reporting period. In determining whether an impairment loss should be recorded in profit and loss, the Group makes judgements as to whether there is observable data indicating a measurable decrease in the estimated future cash flows from a financial asset. Net realisable value of inventories Due to the nature of the company s inventory, it becomes obsolete very quickly. An allowance for obsolescence is made based on the ageing of the inventory and historical experience of obsolescence rates. Any stock that is physically identified as damaged is written off when discovered. esidual values and useful lives of property, plant and equipment The useful lives of property, plant and equipment are based on management s estimate. Management considers the impact of changes in technology and customer service requirements, expected physical wear and tear, expected usage of the asset and any legal or similar limitations on the use of the asset to determine the period over which an item of property, plant and equipment is expected to be available for use by the Company. The estimation of residual values of assets is also based on management s judgement as to whether the assets will be sold, the costs of such disposal and what the expected condition of these assets is likely to be at the time of their disposal. Taxation Judgement is required in determining the provision for income taxes due to the complexity of legislation. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Company recognises liabilities for anticipated tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. 11

13 Accounting Policies 1.1. Significant judgments and sources of estimation uncertainty (continued) Taxation (continued) The Company recognises the net future tax benefit related to deferred income tax assets to the extent that it is probable that the deductible temporary differences will reverse in the foreseeable future. Assessing the recoverability of deferred income tax assets requires the Company to make significant estimates related to expectations of future taxable income. To the extent that future cash flows and taxable income differ significantly from estimates, this may impact the ability of the Company to realise the net deferred tax assets recorded at the end of the reporting period Property, plant and equipment Items of property, plant and equipment are initially recognised at cost. As well as the purchase price, cost includes directly attributable costs and the estimated present value of any future costs of dismantling and removing items. The corresponding liability is recognised within provisions. Subsequent expenditure relating to an item of property is added to the carrying amount of the asset to the extent that it is probable the future economic benefits, in excess of the originally assessed standard of performance of the existing asset, will flow to the enterprise. Depreciation is provided on the straight-line basis on all items of property, plant and equipment to write off the carrying value of items over their expected useful economic lives. It is applied over the following periods: Motor vehicles Office equipment Computer equipment Plant and equipment Furniture, fittings and other equipment Leasehold Improvements 5 years 6 years 3 to 4 years 5 years 6 to 10 years emainder of Lease Obligation The residual value and the useful life of each asset are reviewed at each financial period end. The depreciation charge for each period is recognised in profit or loss. The gain or loss arising from the derecognition of an item of property plant and equipment is included in profit or loss when the item is derecognised. The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item. Current Tax Current tax for current and prior periods is, to the extent unpaid, recognised as a liability. If the amount already paid in respect of current and prior periods exceeds the amount due for those periods, the excess is recognised as an asset. Current tax liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the tax authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the reporting date. 12

14 Accounting Policies 1.3. Taxation (continued) Deferred Taxation A deferred tax liability is recognised for all taxable temporary differences except to the extent that the deferred tax liability arises from the initial recognition of an asset or liability in a transaction which at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). A deferred tax asset is recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised. A deferred tax asset is not recognised when it arises from the initial recognition of an asset or liability in a transaction which, at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). A deferred tax asset is recognised for the carry forward of unused tax losses to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted by the reporting date Inventories The cost of inventories comprises of all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. The cost of inventories of items that are not ordinarily interchangeable and goods or services produced and segregated for specific projects is assigned using specific identification of the individual costs. Inventories are measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business and the estimated costs necessary to make the sale. When inventories are sold, the carrying amount of those inventories are recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value is recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, is recognised as a reduction in the amount of inventories and recognised as an expense in the period in which the reversal occurs Financial instruments Classification The Company classifies financial assets and financial liabilities into the following categories: - Loans and receivables - Financial liabilities measured at amortised cost Classification depends on the purpose for which the financial instruments were obtained or incurred and takes place at initial recognition. 13

15 Accounting Policies 1.5. Financial instruments (continued) Initial recognition Financial instruments are recognised initially when the Company becomes a party to the contractual provisions of the instruments. The Company classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement. Financial instruments are measured initially at fair value. For financial instruments which are not held at fair value through profit or loss, transaction costs are included in the initial measurement of the instrument. Subsequent measurement Loans and receivables are subsequent measured at amortised cost, using the effective interest rate method, less accumulated impairment losses. Financial liabilities at amortised cost are subsequently measured at amortised cost, using the effective interest rate method. Derecognition Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the company has transferred substantially all risks and rewards of ownership. Loans to (from) group companies These loans to (from) the group companies include loans to fellow subsidiaries and loans from the holding company. These loans are initially recognised at fair value plus direct transaction cost. Subsequently these loans are measured at amortised cost using the effective interest rate method. Trade and other receivables Trade and other receivables are classified as loans and receivables. Trade and other payables Trade and other payables are measured at amortised cost using the effective interest rate method. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These are initially recorded at fair value and subsequently measured at amortised cost. 14

16 Accounting Policies 1.5. Financial instruments (continued) Derivative financial instruments Derivative financial instruments, which are not designated as hedging instruments, consisting of forward exchange contracts, are initially measured at fair value on the contract date, and are re-measured at fair value at subsequent reporting dates. Changes in the fair value of derivative financial instruments are recognised in profit or loss as they arise. Impairment of financial assets Financial assets are assessed for indicators of impairment at each end of the reporting period. The financial assets are impaired where there is objective evidence that, as a result of one or more events that have occurred after the initial recognition of the financial asset, the estimated future cash flows of the asset have been impacted. Where the impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. Impairment losses are recognised in profit or loss Deferred revenue The Company has a present and legal obligation to repair or replace goods sold with one, two or three year carryin or on-site warranties in the event that the product should fail to operate under normal operating conditions. That portion of the revenue earned on the original sale that relates to the provision of warranties is deferred and recognised in profit t or loss over the period of the warranties Impairment of assets At each end of the reporting period, the Company reviews the carrying amounts of its tangible and intangible assets, other than goodwill, to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cashgenerating units for which a reasonable and consistent allocation basis can be identified. ecoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is related as a revaluation decrease. 15

17 Accounting Policies 1.8. evenue evenue comprises the invoiced value of sales, excluding Value Added Tax, net of discounts. evenue from the sale of goods is recognised at the fair value of the consideration received or receivable when significant risk and rewards of ownership have passed to the buyer. evenue for the sale of extended warranties is recognised over the period of the warranty. Interest income is recognised on a time apportioned basis that takes into account the effective yield of the asset Borrowing costs All borrowing costs are recognised as an expense in the period in which they are incurred Foreign currencies Transactions entered into by the company in a currency other than the currency of the primary economic environment in which it operates (the functional currency ) are recorded at the rates ruling when the transactions occur. Foreign currency monitory assets and liabilities are translated at the rates ruling at the end of the reporting period. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are similarly recognised immediately in profit or loss. In order to hedge its exposure to foreign exchange risks, the company enters into forward exchange contracts Share Capital Ordinary shares are classified as equity. Incremental external costs directly attributable to the issue of ordinary shares are recognised in equity as a deduction, net of tax from the proceeds Employee Benefits Short-term employee benefits The cost of short-term employee benefits (those payable within 12 months after the service is rendered, such as paid vacation leave and sick leave, bonuses, and non-monetary benefits such as medical care), are recognised in the period in which the services are rendered and are not discounted. The expected cost of profit sharing and bonus payments is recognised as an expense when there is a legal or constructive obligation to make such payments as a result of past performance. Defined contribution plans A defined contribution plan is one under which a Company pays a fixed percentage of employees remuneration as contributions into a separate entity (a fund), and which will entail no further legal or constructive obligations to pay additional contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee services in the current and prior periods. Contributions to defined contribution plans in respect of services rendered during a period are recognised as an employee benefit expense when they are due. The Company does not have any defined benefit plans. 16

18 Accounting Policies Share-based payments The Company recognises services received in share-based payment transactions when services are performed. The value of services received is measured by reference to the fair value of such services, or, if the fair value of service cannot be measured reliably, then the fair value of the equity instruments issued. In terms of the employee share incentive scheme, shares are allocated at a price determined by the Board of Directors, which price may not be less than 10% of the cost of the shares to the Company, whether issued from treasury shares, purchased in the market or at 10% of the issue price if issued by the Company, and subsequently all risks and rewards of ownership are transferred to the employee on acceptance of the offer. Shares were awarded to certain executives at a discount to the share price ruling on the date of the award during the year under review, as more fully detailed in Note 25 and all risks and rewards relating thereto have accordingly been transferred to them. The sale is subject to a three-year service condition, and the fair value of the benefit t given, being the value of the discount, will be recognised over this service period. As the award was made at the end of the previous year, the full value of one year of the share-based payment expense has been recognised in the current financial year Finance leases Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Company (a finance lease ), the asset is treated as if it had been purchased outright. The amount initially recognised as an asset is the fair value or if lower the present value of the minimum lease payments payable over the term of the lease. The corresponding lease commitment is shown as a liability. Lease payments are analysed between capital and interest. The interest element is charged to the income statement over the period of the lease and is calculated so that it represents a constant proportion of the lease liability. The capital element reduces the balance owed to the lessor. Finance lease assets are carried at the initial recognised amount less accumulated depreciation and impairment losses. These capitalised lease assets are depreciated in accordance with the policies applicable to equivalent items of property, plant and equipment. Where substantially all of the risks and rewards incidental to ownership are retained by the lessor (an operating lease ), the total rentals payable under the lease are charged to the income statement on a straight-line basis over the lease term. 17

19 Accounting Policies New Standards and Interpretations Standards and interpretations effective and adopted in the current year In the current year, the Company has adopted the following standards and interpretations that are effective for the current financial year and that are relevant to its operations: Statement IFS 13 Fair Value Measurement IAS 1 Annual Improvements for cycle Detail This new standard setting out guidance on the measurement and disclosure of items measured at fair value or required to be disclosed at fair value in terms of other IFS. This standard provides clarification on the requirements for comparative information. Specifically, if a retrospective restatement is made, a retrospective change in accounting policy or a reclassification, the statement of financial position at the beginning of the previous period is only required if the impact on the beginning of the previous period is material. elated notes are not required, other than disclosure of specified information. Effective date 01 January January 2013 The Company has adopted these standards for the first time in the 2014 annual financial statements, and the impact of these standards are not material Standards and interpretations not yet effective The Company has chosen not to early adopt the following standards and interpretations, which have been published and are mandatory for the Company s accounting periods beginning on or after 1 March 2014 or later periods: Statement Detail This new standard is the first phase of a three phase project to replace IAS 39 Financial Instruments: Effective date IFS 9 Financial Instruments ecognition and Measurement. To date, the standard includes chapters for classification, measurement and derecognition of financial assets and liabilities. The following are the main changes from IAS 39: a) Financial assets will be categorised as those subsequently measured at fair value or at amortised cost. 01 January 2018 b) Financial assets at amortised cost are those financial assets where the business model for managing the assets is to hold the assets to collect contractual cash flows (where the contractual cash flows represent payments of principal and interest only). All other financial assets are to be subsequently measured at fair value. 18

20 Accounting Policies New Standards and Interpretations (continued) Standards and interpretations not yet effective (continued) Statement Detail c) Under certain circumstances, financial assets may be designated as at fair value. d) For hybrid contracts, where the host contract is an asset within the scope of IFS 9, then the whole instrument is classified in accordance with IFS 9, without separation of the embedded derivative. In other circumstances, the provisions of IAS 39 still apply. e) Voluntary reclassification of financial assets is prohibited. Financial assets shall be reclassified if the entity changes its business model for the management of financial assets. In such circumstances, reclassification takes place prospectively from the beginning of the first reporting period after the date of change of the business model. f) Financial liabilities shall not be reclassified. Effective date g) Investments in equity instruments may be measured at IFS 9 Financial Instruments 01 January 2018 fair value through other comprehensive income. When such an election is made, it may not subsequently be revoked, and gains or losses accumulated in equity are not recycled to profit or loss on derecognition of the investment. The election may be made per individual investment. a) IFS 9 does not allow for investments in equity instruments to be measured at cost. b) The classification categories for financial liabilities remains unchanged. However, where a financial liability is designated as at fair value through profit or loss, the change in fair value attributable to changes in the liabilities credit risk shall be presented in other comprehensive income. This excludes situations where such presentation will create or enlarge an accounting mismatch, in which case, the full fair value adjustment shall be recognised in profit or loss. 19

21 Accounting Policies New Standards and Interpretations (continued) Standards and interpretations not yet effective (continued) Statement IFS 13 - Annual improvements for cycle Detail Fair Value Measurement: Short-term receivables and payables: The objective of the project is to clarify the IASB s rationale for removing paragraph B of IFS 9 Financial Instruments and paragraph AG79 of IAS 39 Financial Instruments: ecognition and Measurement as consequential amendments from IFS 13 Fair Value Measurement. Those paragraphs in IFS 9 and IAS 39 contained a guidance related to the measurement of shortterm receivables and payables with no stated interest rate at invoice amounts. The IASB proposes to carry out this clarification through an amendment to the Basis for Conclusions of IFS 13 via the Annual Improvements project. The amendment to the Basis for Conclusions of IFS 13 clarifies that when deleting those paragraphs, the IASB did not intend to change the measurement requirements for short-term receivables and payables, because it noted that IFS 13 contains guidance for using present value techniques to measure fair value and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, addresses materiality in applying accounting policies. However, the IASB was informed that some users of IFS think that the deletion means that the measurement requirements have changed. Fair Value Measurement: Scope of paragraph 52 (portfolio exception): Paragraph 52 of IFS 13 includes a scope exception for measuring the fair value of a group of financial assets and financial liabilities on a net basis. This is referred to as the portfolio exception. The objective of this amendment is to clarify that the portfolio exception applies to all contracts within the scope of IAS 39 Financial Instruments: ecognition and Measurement or IFS 9 Financial Instruments, regardless of whether they meet the definitions of financial assets or financial liabilities as defined in IAS 32 Financial Instruments: Presentation. Effective date 01 July

22 Accounting Policies New Standards and Interpretations (continued) Standards and interpretations not yet effective (continued) Statement IFS 13 - Annual improvements for cycle IAS 24 - Annual improvements for cycle Detail The IASB was made aware that it was not clear whether the scope of the exception for measuring the fair value of a group of financial assets and financial liabilities on a net basis (the portfolio exception ) set out in paragraph 52 includes all contracts that are within the scope of IAS 39 or IFS 9. In particular, questions were raised about whether the scope of the portfolio exception included contracts that are accounted for as if they were financial instruments, but that do not meet the definitions of financial assets or financial liabilities in IAS 32, such as some contracts to buy or sell non-financial items that can be settled net in cash or another financial instrument, or by exchanging financial instruments, as if the contracts were financial instruments. The IASB did not intend to exclude such contracts from the scope of the portfolio exception. Consequently, the IASB proposes to amend paragraph 52 of IFS 13 to clarify that the portfolio exception applies to all contracts within the scope of IAS 39 or IFS 9, regardless of whether they meet the definitions of financial assets or financial liabilities as defined in IAS 32. In 2010, the Interpretations Committee received a request asking whether key management personnel (KMP), as defined in IAS 24 elated Party Disclosures, could include an entity or whether it could only apply to individuals. This issue was originally referred to the Interpretations Committee because it is common in some industries, such as mutual fund management, that key management personnel services can be provided in a variety of ways. It is clear in IAS 24 that KMP employed directly by the reporting entity, or through a related-party KMP service provider, are identified as a related party. The concerns about the identification of KMP costs arise when KMP services to the reporting entity are provided by entities that do not otherwise meet the definition of a related party provider. The IASB proposes that the management entity providing KMP services should be identified as a related party of the reporting entity; an exemption should be granted from the detailed disclosure requirements in paragraph 17 of IAS 24 in respect of KMP services provided by a management entity; and payments made to a management entity in respect of KMP services should be separately disclosed by extending the disclosure requirements in paragraph 18 of IAS 24. Effective date 01 July July

23 Accounting Policies New Standards and Interpretations (continued) Standards and interpretations not yet effective (continued) Statement IFS 15 - evenue from Contracts with Customers Plans Detail The objective of IFS 15 is to establish the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a contract with a customer. All standards and interpretations will be adopted at their effective dates. Effective date 01 January 2017 Management has not yet determined the extent to which the improvements and amendments to the standards will impact the Company s annual financial statements. 22

24 Notes to the Annual Financial Statements 2. Property, plant and equipment Leasehold Equipment and Improvements Motor Vehicles Total Book value at 30 June ,822,649 11,891,362 19,714,011 Cost 9,695,162 34,294,151 43,989,313 Accumulated depreciation (1,872,513) (22,402,789) (24,275,302) Movements for the year 2013 Additions at cost 370,216 3,301,719 3,671,935 Disposals - (208,416) (208,416) Cost - (422,665) (422,665) Accumulated depreciation - 214, ,249 Depreciation (1,167,200) (3,737,097) (4,904,297) Book value at 30 June ,025,665 11,247,568 18,273,233 Cost 10,065,378 37,173,205 47,238,583 Accumulated depreciation (3,039,713) (25,925,637) (28,965,350) Movements for the year 2014 Cost 9,415 3,602,737 3,612,152 Disposals (5,976,653) (410,015) (6,386,668) Cost (8,956,017) (665,083) (9,621,100) Accumulated depreciation 2,979, ,068 3,234,432 Depreciation (592,378) (4,095,108) (4,687,486) Book value at 30 June ,049 10,345,182 10,811,231 Cost 1,118,776 40,110,859 41,229,635 Accumulated depreciation (652,727) (29,765,677) (30,418,404) Assets pledged as security Motor Vehicles and plant and equipment with a book value of 237,264 (2013: 556,318) have been pledged as security for instalment sale liabilities as disclosed in note Intangible assets Trademarks 59,075 59,075 23

25 Notes to the Annual Financial Statements 4. Loan to / (from) group companies (continued) Pinnacle Treasury Services Limited (76,663,268) 88,435,783 This loan is unsecured, bears interest linked to the prime interest rate and has no fixed terms of repayment. Pinnacle Business Solutions Proprietary Limited 105,887,028 - Centravoice Proprietary Limited 14,815,627 - Froggy Proprietary Limited 3,210,339 - Modrac Proprietary Limited 48,631,157 - Pacific Cables Proprietary Limited 2,192,442 - These loans are unsecured, bear no interest and have no fixed terms of repayment. 174,736,593 - Current assets 174,736,593 88,435,783 Current liabilities (76,663,268) - 5. Deferred tax Deferred tax asset Property, plant and equipment (195,456) (212,924) Provisions 5,271,911 8,512,630 Deferred revenue 601, ,006 Lease Smoothing 192, ,757 5,871,262 9,261,469 econciliation of deferred tax asset Deferred tax asset at the beginning of the year 9,261,469 5,051,286 Temporary differences (3,390,207) 4,210,183 Deferred tax asset at the end of the year 5,871,262 9,261,469 ecognition of deferred tax asset A deferred tax asset has been raised on based on conservative forecast of future taxable income. The directors are satisfied that there will be sufficient future taxable income to utilise the deferred tax asset. 24

26 Notes to the Annual Financial Statements 6. Inventory Stock on hand 510,213, ,126,219 Stock in transit 60,834,679 39,433,298 Allowance for non-saleable or damaged stock (7,744,262) (17,811,438) 7. Trade and other receivables 563,303, ,748,079 Trade debtors 494,087, ,361,907 Allowance for bad debts (6,009,937) (5,652,870) Pre-paid expenses 3,084, ,401 FEC Asset 1,034,972 3,462,798 Vat 27,591,931 - Other debtors 38,223 1,482, ,826, ,805, Cash and cash equivalents 2014 Foreign Cash on hand currency 9,163,267 20,382,448 Balances with banks (160,950,794) (214,609,169) ZA (160,235,667) (215,874,092) USD -$67,246 (715,127) 1,264,923 Banking facilities (151,787,527) (194,226,721) The Company shares the following group facilities Contingent Facilities 2,090,000 1,000,000 Direct or settlement facilities 259,160, ,000,000 Pre-settlement facilities 10,000,000 24,000, ,250, ,000,000 At year end facilities utilised amounted to 160,353, ,254,829 25

27 Notes to the Annual Financial Statements 8. Cash and cash equivalents (continued) First National Bank Limited Securities 1. Unlimited suretyship given by Pinnacle Holdings Limited for obligations dated 02/12/2011; 2. Unlimited cession and pledge of credit balances given by Pinnacle Micro Proprietary Limited dated 02/12/2011; 3. Cession of debts given by Pinnacle Micro (Pty) Ltd dated 04/04/2007. Guarantees Beneficiary Number Exp Date SAS ,000 50,000 SAS ,000 50,000 Transactional Letter of Credit Beneficiary Number Exp Date Max Online Limited $ 353,837 $ 328,874 Max Online Limited $ 316,450 $ - Samsung Techwin $ 192,645 $ - 9. Share capital Authorised - 1,000 ordinary shares of 1 each 1,000 1,000 Issued ordinary shares of 1 each Instalment sale liabilities Liabilities under instalment sale agreements 240, ,314 Less: Current portion of long term liabilities included under current liabilities (42,104) (156,903) 198, ,411 The above loans are secured over motor vehicles and plant and equipment with a book value of 237,264 (2013: 556,318 (efer note 2). These loans bear interest at rates varying between prime and prime less 0.5%. These loans are repayable in monthly instalments of 5,074 (2013: 20,141) inclusive of interest of 1,721 (2013: 1,621). 26

28 Notes to the Annual Financial Statements 10. Instalment sale liabilities (continued) Total minimum payments and present value Total Payment Up to one year 60, ,509 One to five years 233, , , ,763 Less: Finance cost -53,313-43,449 Present value 240, ,314 Up to one year 42, ,903 One to five years 198, ,411 Current liability 42, ,903 Non-current liability 198, , Trade and other payables Trade creditors 581,707, ,013,982 Accruals 9,362,019 7,416,114 Other payables 25,177,014 44,756,753 Lease smoothing 688,671 1,256,275 Vat - 16,002, ,935, ,445, Deferred revenue Opening balance 6,360,310 4,370,870 Provided - 6,199,193 Utilised (6,359,940) (4,209,753) Closing balance 370 6,360,310 The Company has a present and legal obligation to repair or replace goods sold with one, two or three-year carryin or on-site warranties in the event that the product should fail to operate under normal operating conditions. That portion of the revenue earned on the original sale that relates to the provision of warranties is deferred and recognised in profit or loss over the period of the warranties. 27

29 Notes to the Annual Financial Statements 13. Foreign exchange contracts Foreign Average currency forward Unrealised amount exchange rate gain / (loss) 2014 Forward Exchange contracts $ 33,470, ,030,491 Forward Exchange contracts 20, ,906 Forward Exchange contracts GBP 12, The maturity dates of these contracts vary between 3 July 2014 and 15 August ,034, Forward Exchange contracts $ 11,131, ,707,165 Forward Exchange contracts 287, ,454 Forward Exchange contracts GBP , evenue 4,752,669 Goods 3,444,175,552 2,961,262,451 Less: Discount allowed (23,425,653) (18,621,335) Warranties - 6,199, Cost of sales 3,420,749,899 2,948,840,309 Cost of goods sold 3,040,099,655 2,532,188, Other Income Advertising 10,129,818 9,210,717 Assembly fees 6,583,414 8,245,726 Other income 2,793,334 3,539,306 Profit on disposal of property, plant and equipment 2,902, ,889 Profit on foreign exchange 4,553,779 9,396,079 Warranty voucher sales - 4,202,060 26,963,206 34,698,777 28

30 Notes to the Annual Financial Statements 17. Operating profit Operating profit for the year is stated after taking the following into account: Depreciation 4,687,486 4,904,297 (Profit) Loss on the sale of property, plant and equipment (2,902,861) (104,889) Foreign currency exchange (gain) / loss (4,553,779) (9,402,782) Operating lease charges - straight-line basis 21,550,820 17,158,894 Staff costs 148,042, ,939, Interest received Bank - 4,071,934 Other 436,192 - Holding Company - 4,746, Interest paid 436,192 8,818,138 Bank 18,916,374 15,966,054 Holding Company 5,331,316 - Other 60,207 93, Taxation 24,307,897 16,059,305 Normal Taxation - Current year 23,921,743 60,179,130 - Adjustments in respect of the prior year (2,237,802) - Deferred Taxation - Current year 3,390,207 (5,823,453) Total Taxation 25,074,148 54,355,677 econciliation of tax rate Net profit before taxation 99,877, ,503,449 Taxation (25,074,148) (54,355,676) % % Effective Tax ate 25.10% 28.24% S.A. Normal Tax ate 28.00% 28.00% Disallowable expenditure -2.90% 0.23% 29