INTERIM REPORT
Vita Group Limited ABN 62 113 178 519 ACN 113 178 519 Interim Financial Report for the half year ended
Contents Directors Report... 3 Auditor s Independence Declaration... 5 Consolidated Statement of Comprehensive Income... 6 Consolidated Balance Sheet... 7 Consolidated Statement of Changes in Equity... 8 Consolidated Statement of Cash Flows... 9 Notes to the Financial Statements... 10 Directors Declaration... 21 Independent Auditor s Review Report... 22 2
Directors Report VITA GROUP LIMITED INTERIM FINANCIAL REPORT Your Directors submit their report for the half year ended. DIRECTORS The Directors of the Company during the whole of the half year were: Dick Simpson (Independent Chairman) Maxine Horne (Chief Executive Officer) Neil Osborne (Independent Non-Executive Director) Robyn Watts (Independent Non-Executive Director) REVIEW AND RESULTS OF OPERATIONS A summary of consolidated revenues and results for the half year by significant industry segment is set out below: Half year Operating revenue $ 000 $ 000 Growth % Telecommunications segment 173,757 172,709 1% Computing segment 42,078 49,482 (15%) Total operating revenue (a) 215,835 222,191 (3%) Gross profit (b) 70,153 69,268 1% Underlying earnings before interest, taxation, depreciation and amortisation (c) 12,083 10,206 18% Underlying earnings before interest and taxation (d) 6,848 4,859 41% Impairment of Next Byte (19,397) - Earnings before interest and taxation (e) (12,549) 4,859 Net (loss)/profit from operations (15,219) 2,684 Earnings per share (cents) (10.68) 1.88 (a) Total segment revenue excluding finance revenue (Note 3) (b) Gross profit excluding finance revenue (consolidated statement of comprehensive income) (c) Profit from continuing operations before income tax excluding depreciation, amortisation expenses, impairment and finance revenue and costs (consolidated statement of comprehensive income) (d) Profit from continuing operations before income tax excluding finance revenue and costs, and impairment (consolidated statement of comprehensive income) (e) (Loss)/profit from continuing operations before income tax excluding finance revenue and costs, (consolidated statement of comprehensive income) Operating revenue declined in the half by 3% to $215.8m as the Group continued to refine its portfolio of businesses. Revenues grew in the areas the Group has deemed strategically important, but were offset by weaker revenues in non-strategic segments. The Telecommunications segment recorded a 1% increase in revenues on the prior corresponding period, reflecting strong growth from the business segment and from Telstra branded stores, offset by lower Fone Zone revenues. Computing revenues were down 15% overall. Whilst the contribution from older format stores was lower reflecting weaker like-for-like comparatives and closed stores, the Group s new format Apple Premium Reseller (APR) stores delivered an 18% uplift in revenues. Underlying EBITDA was up 18% to $12.1m in the period, reflecting growth in the Group s strategic businesses - Telstra stores, the business channel and new format APR stores. The improvement in underlying EBITDA reflects a shift in mix toward higher margin businesses and a focus on driving higher rates of productivity. The Telecommunications segment delivered underlying EBITDA of $12.9m, 22% up on the same period last year, whilst the Computing segment made a small loss of $0.8m for the period after incurring restructuring costs of $0.4m, relating to the migration from old to new format stores. During the half, the Board reviewed with management the strategic investment priorities for the Group. Up until the review, a material expansion of the Next Byte brand had been planned, led by a national rollout of new format APR stores in regional centres that would complement Apple s prominent CBD and large mall locations. The review undertaken determined that the Group could unlock attractive returns by investing in the Telecommunications 3
Directors Report (continued) REVIEW AND RESULTS OF OPERATIONS (continued) business market and particularly in the Network, Applications and Services segments and the Camelon acquisition, completed on 1 October, was an early initiative targeting that opportunity. It was also determined that the potential returns from the Next Byte expansion were inferior to those in the Telecommunications business market and that the expansion plans should be moderated in the interests of creating greater shareholder value in the medium term. As a consequence, whilst Next Byte remains an important part of the Group and will be targeting earnings growth, the potential earnings and therefore recoverable amount arising from the business would be impacted. The Board elected to write off the value of Next Byte goodwill at 31 December amounting to $19.4m. The charge is non-cash in nature and has no impact on business operations. Gross debt was $13.6m at the end of the period, down $10.2m on the same time last year and down $1.9m on June 30, despite the acquisition of Camelon I.T. on 1 October. Cash flows during the period were focused towards the repayment of debt and dividend payments. Cash and cash equivalents were $11.2m at the end of the period compared with $24.9m in the prior corresponding period, which benefited from one off working capital benefits, and were down only $1.6m on June 30 balances. The Board has approved an interim dividend of 1.91cps, up 66% from 1.15 cps in the prior corresponding period, and re-iterated its intent to target a full year payout ratio of 65% of profits after tax. Record date for the interim dividend will be 17 March 2014, with payment date being 11 April 2014. AUDITOR S INDEPENDENCE DECLARATION A copy of the auditor s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 5. ROUNDING OF AMOUNTS The company is of a kind referred to in Class Order 98/100, issued by the Australian Securities and Investment Commission, in respect of the rounding off of amounts in the directors and financial reports. Amounts have been rounded off to the nearest thousand dollars in accordance with that Class Order. This report is made in accordance with a resolution of directors. Dick Simpson Chairman Maxine Horne Director Brisbane Date: 28 February 2014 4
Auditor s Independence Declaration As lead auditor for the review of Vita Group Limited for the half-year ended, I declare that to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the review; and b) no contraventions of any applicable code of professional conduct in relation to the review. This declaration is in respect of Vita Group Limited and the entities it controlled during the period. Kim Challenor Partner PricewaterhouseCoopers Brisbane 28 February 2014 PricewaterhouseCoopers, ABN 52 780 433 757 Riverside Centre, 123 Eagle Street, BRISBANE QLD 4000, GPO Box 150, BRISBANE QLD 4001 T: +61 7 3257 5000, F: +61 7 3257 5999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation.
Consolidated Statement of Comprehensive Income FOR THE HALF YEAR ENDED 31 DECEMBER Half year Note $ 000 $ 000 Continuing operations Sale of goods 170,162 180,047 Fee and commission revenue 45,673 42,144 Revenue 6(a) 215,835 222,191 Inventory consumed (145,682) (152,923) Gross profit 70,153 69,268 Other income 6(b) 4,576 3,513 Employment expenses 6(e) (40,987) (41,283) Marketing and advertising expenses (4,639) (3,926) Operating lease rental expenses 6(f) (9,648) (9,758) Administration expenses (6,661) (6,775) Other expenses (711) (833) 12,083 10,206 Depreciation and amortisation 6(d) (5,235) (5,347) Impairment of Next Byte goodwill 9 (19,397) - (12,549) 4,859 Finance income 156 129 Finance costs (1,016) (1,290) Net finance costs 6(c) (860) (1,161) (Loss)/profit before income tax (13,409) 3,698 Income tax (expense) (1,810) (1,014) (Loss)/profit from operations (15,219) 2,684 Other comprehensive (loss)/income for the half year, net of tax - - Total comprehensive (loss)/income for the half year, attributable to the ordinary equity holders of Vita Group Limited (15,219) 2,684 Earnings per share for (loss)/income from continuing operations attributable to the ordinary equity holders of the company - basic (cents per share) (10.68) 1.88 - diluted (cents per share) (10.68) 1.88 Theconsolidatedstatementofcomprehensiveincomeshouldbereadinconjunctionwiththeaccompanyingnotes. 6
Consolidated Balance Sheet AS AT 31 DECEMBER VITA GROUP LIMITED INTERIM FINANCIAL REPORT 30 June Note $ 000 $ 000 $ 000 ASSETS Current Assets Cash and cash equivalents 11,168 12,777 24,896 Trade and other receivables 27,878 20,941 24,031 Inventories 17,170 13,620 16,135 Total Current Assets 56,216 47,338 65,062 Non-current Assets Term deposits 25 25 25 Plant and equipment 7 22,916 25,678 29,145 Intangible assets and goodwill 8 34,914 48,490 48,596 Deferred tax assets 14,155 13,310 12,874 Total Non-current Assets 72,010 87,503 90,640 TOTAL ASSETS 128,226 134,841 155,702 LIABILITIES Current Liabilities Trade and other payables 70,554 59,380 74,238 Interest bearing loans and borrowings 9,147 10,199 12,303 Income tax liability 1,347 1,657 2,285 Provisions 1,471 1,323 1,202 Total Current Liabilities 82,519 72,559 90,028 Non-current Liabilities Trade and other payables 15,302 12,962 12,215 Interest bearing loans and borrowings 4,440 5,332 11,482 Provisions 3,080 3,490 3,361 Total Non-current Liabilities 22,822 21,784 27,058 TOTAL LIABILITIES 105,341 94,343 117,086 NET ASSETS 22,885 40,498 38,616 EQUITY Contributed equity 10 13,079 13,079 13,079 Retained earnings 9,806 27,419 25,537 TOTAL EQUITY 22,885 40,498 38,616 Theconsolidatedbalancesheetshouldbereadinconjunctionwiththeaccompanyingnotes. 7
Consolidated Statement of Changes in Equity FOR THE HALF YEAR ENDED 31 DECEMBER Attributable to equity holders of the parent Contributed equity Retained earnings Employee equity benefits reserve Total equity $ 000 $ 000 $ 000 $ 000 At 1 July 13,079 23,922-37,001 Profit for the half year - 2,684-2,684 Total comprehensive income for the half year - 2,684-2,684 Transactions with owners in their capacity as owners: Dividends paid - (1,069) - (1,069) At 13,079 25,537-38,616 At 1 July 13,079 27,419-40,498 (Loss) for the half year - (15,219) - (15,219) Total comprehensive (loss) for the half year - (15,219) - (15,219) Transactions with owners in their capacity as owners: Dividends paid - (2,394) - (2,394) At 13,079 9,806-22,885 Theconsolidatedstatementofchangesinequityshouldbereadinconjunctionwiththeaccompanyingnotes. 8
Consolidated Statement of Cash Flows FOR THE HALF YEAR ENDED 31 DECEMBER Cash flows from operating activities Note Half year $ 000 $ 000 Receipts from customers (inclusive of GST) 240,337 258,977 Payments to suppliers and employees (inclusive of GST) (228,080) (235,539) Interest received 156 129 Finance costs (893) (1,240) Income tax (paid) (2,908) (2,472) Net cash flows from operating activities 8,612 19,855 Cash flows from investing activities Purchase of plant and equipment (1,661) (5,547) Purchase of intangibles (326) (917) Payments for store acquisitions 11 (3,709) (1,624) Proceeds from investments - 98 Net cash flows (used in) investing activities (5,696) (7,990) Cash flows from financing activities Proceeds from borrowings 3,798 6,213 Repayment of borrowings (4,882) (4,538) Repayment of finance lease principal (1,047) (885) Dividends paid 5 (2,394) (1,069) Net cash flows (used in) financing activities (4,525) (279) Net (decrease)/increase in cash and cash equivalents (1,609) 11,586 Cash and cash equivalents at beginning of year 12,777 13,310 Cash and cash equivalents at end of the half year 11,168 24,896 Theconsolidatedstatementofcashflowsshouldbereadinconjunctionwiththeaccompanyingnotes. 9
Notes to the Financial Statements FOR THE HALF YEAR ENDED 31 DECEMBER 1. BASIS OF PREPARATION OF HALF YEAR REPORT This condensed consolidated interim financial report for the half year ended has been prepared in accordance with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Act 2001. This condensed consolidated interim financial report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual financial report for the year ended 30 June, which have been prepared in accordance with IFRS and any public announcements made by Vita Group Limited during the interim reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001. The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period. Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings. The Group s net current liability position reflects the natural flow of cash in and out of the business and a focus on working capital controls. The Group has access to cash balances arising from operations and unused credit facilities of $15.4m (31 December : $3.3m) with the Australia and New Zealand Banking Group Limited to meet its financial obligations and to fund its investment strategy for the coming year and onwards. 2. ACCOUNTING ESTIMATES AND SIGNIFICANT ITEMS The Group makes estimates and assumptions concerning the future, which are used to determine the carrying value of assets. Changes in accounting estimates arise from a reassessment of the present status of and expected future benefits and obligations associated with assets and liabilities. Deferred Income The Group offered an Entire Service Package (ESP), which provides customers with a replacement handset of the same or similar type in the event of handset failure, for the period of time it takes to repair or replace the handset. Revenue relating to sales of ESP is deferred over the life of the product term (30 months). A straight line method of income recognition is applied over the life of the product. At, $29.2 million ( : $24.7 million) of unearned ESP revenue was recognised in current and non-current liabilities, which will benefit profits in future periods. As announced to the market in December, the ESP product has been discontinued from 1 January, 2014. The Group continues to service the obligations attached to all products sold prior to 1 January 2014 until the product term expires. Replacement Handset Stock Under the ESP product, the cost of the replacement handsets are amortised evenly over the life of the products (30 months). Restructuring Costs The Group undertook some restructuring activities during the half year. Costs of restructuring, including redundancy costs and onerous leases were $0.7 million in the half year to ( : $0.5 million). Acquisitions The Group has applied the requirements of AASB 3 Business Combinations to acquisitions undertaken in the period (as detailed in Note 11). Impairment An impairment charge of $19.4 million was made against goodwill in the period to reflect a reduction in the recoverable amount relating to the Group s investment in Next Byte, a business acquired by the Group in 2007. Whilst the Group intends to deliver improved financial returns from the business, a decision has been made to redirect some human and capital resources away from Next Byte and into more profitable growth opportunities, primarily the Telecommunications business channel and as a result, financial aspirations for the business have been reduced. Consequently, the net present value of expected future cash flows arising from Next Byte was impacted and an impairment charge was deemed necessary by the Board (as detailed in Note 9). 10
Notes to the Financial Statements (Continued) FOR THE HALF YEAR ENDED 31 DECEMBER 3. SEGMENT REPORTING (a) Description of segments Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Executive Officer and the Board. The Telecommunications and Computing segments sell different products and have different risk profiles. The products sold in the Telecommunications segment comprise fixed line and mobile communication devices, related accessories and services as well as voice and data services. Products sold in the Computing segment comprise laptop and desktop computers, mobile devices, associated accessories and peripheral equipment as well as service and rental contracts. This segment also sells limited voice and data services. The Group operates in Australia and thus the Chief Executive Officer and the Board do not consider the business from a geographical perspective. (b) Segment information provided to the Chief Executive Officer and the Board The segment information provided to the Chief Executive Officer and the Board for the reportable segments for the half year ended is as follows: Half year Telecommunications Computing Total operations $ 000 $ 000 $ 000 Half year ended Revenue Sales of goods 129,002 41,160 170,162 Fee and commission revenue 44,755 918 45,673 Revenue from external customers 173,757 42,078 215,835 Underlying EBITDA 12,901 (818) 12,083 Half year ended Revenue Sales of goods 131,749 48,298 180,047 Fee and commission revenue 40,960 1,184 42,144 Revenue from external customers 172,709 49,482 222,191 Underlying EBITDA 10,562 (356) 10,206 The Chief Executive Officer and the Board assesses the performance of the operating segments based on underlying EBITDA. No reporting is currently provided to the Chief Executive Officer and the Board with respect to total segment assets or liabilities as these items are managed at a consolidated Group level only. 11
Notes to the Financial Statements (Continued) FOR THE HALF YEAR ENDED 31 DECEMBER 3. SEGMENT REPORTING (continued) (c) Other segment information (i) Segment revenue The revenue from external parties reported to the Chief Executive Officer and the Board is measured in a manner consistent with that in the consolidated statement of comprehensive income. Revenues from external customers are derived from the sale of telecommunications and computing products and services as defined in Note 6(a). A summary of revenue across these product areas is shown below: Half year $ 000 $ 000 Telecommunications products 173,757 172,709 Computing products 42,078 49,482 Total segment revenue 215,835 222,191 Segment revenue reconciles to total revenue from continuing operations as follows: Half year $ 000 $ 000 Total segment revenue 215,835 222,191 Total revenue from continuing operations (Note 6 (a)) 215,835 222,191 (ii) Underlying EBITDA Underlying EBITDA is a measure used internally by the Group as a proxy for cash profitability. It represents earnings before interest, tax, depreciation, amortisation and impairment. A reconciliation of underlying EBITDA (excluding impairment) to operating (loss)/profit before income tax is provided as follows: Half year $ 000 $ 000 Underlying EBITDA 12,083 10,206 Interest revenue 156 129 Finance costs (1,016) (1,290) Depreciation and amortisation (5,235) (5,347) Impairment of Next Byte goodwill (19,397) - (Loss)/profit from continuing operations before income tax (13,409) 3,698 12
Notes to the Financial Statements (Continued) FOR THE HALF YEAR ENDED 31 DECEMBER 3. SEGMENT REPORTING (continued) (c) Other segment information (continued) (iii) Segment assets No reporting is currently provided to the Chief Executive Officer and the Board with respect to total segment assets as these items are managed at a consolidated Group level only. The amounts disclosed for total segment assets are an allocation of total consolidated assets based on the operations of the segments and the physical locations of assets. Reportable segments assets are reconciled to total assets as follows: Half year $ 000 $ 000 Telecommunications 109,997 117,087 Computing 18,229 38,615 Total assets as per the consolidated balance sheet 128,226 155,702 (iv) Segment liabilities No reporting is currently provided to the Chief Executive Officer and the Board with respect to total segment liabilities as these items are managed at a consolidated Group level only. 4. INCOME TAXES Income tax expense is recognised based on management s estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual tax rate used for the half year to is 30% (the estimated tax rate for the financial year ending 30 June 2014 is 32%). Income tax expense for the half year includes a credit of $8,817 resulting from finalisation of the 30 June income tax return. 5. DIVIDENDS (a) Ordinary shares Half year $ 000 $ 000 Dividends provided for or paid during the half year 2,394 1,069 (b) Dividends not recognised at the end of the half year Half year $ 000 $ 000 In addition to the above dividends, since the end of the half year the Board have approved the payment of an interim dividend of 1.91 cents per fully paid ordinary share (: 1.15 cents per share), fully franked based on tax paid at 30%. The aggregate amount of the proposed dividend expected to be paid on 11 April 2014 out of retained earnings at, but not recognised as a liability at the end of the half year, is: 2,722 1,639 13
Notes to the Financial Statements (Continued) FOR THE HALF YEAR ENDED 31 DECEMBER 6. REVENUE AND EXPENSES Half year $ 000 $ 000 Revenue and Expenses (a) Revenue Sale of goods 170,162 180,047 Fee and commission revenue 45,673 42,144 215,835 222,191 (b) Other income Cooperative marketing revenue 4,214 3,195 Other miscellaneous income 362 318 4,576 3,513 (c) Net finance costs Finance charges under finance leases 92 175 Finance charges under hire purchase contracts 355 536 Provisions: unwinding of discount 82 50 Line facility fee 386 243 Interest on term debt 56 148 Other interest expense 45 138 Total finance costs 1,016 1,290 Interest revenue on bank deposits (156) (129) Finance income (156) (129) Net finance costs 860 1,161 (d) Depreciation and amortisation Depreciation of plant and equipment 3,917 3,919 Amortisation of plant and equipment under lease 786 920 Amortisation of intangibles 532 508 5,235 5,347 (e) Employment expenses Wages and salaries 36,065 35,917 Defined contribution superannuation expense 3,144 3,040 Employee entitlements 1,778 2,326 40,987 41,283 (f) Operating lease rental expenses Minimum lease payments operating lease 9,648 9,758 14
Notes to the Financial Statements (Continued) FOR THE HALF YEAR ENDED 31 DECEMBER 7. PLANT AND EQUIPMENT 30 June $ 000 $ 000 $ 000 Plant and equipment under lease 6,443 7,610 7,975 Accumulated amortisation and impairment (4,933) (5,293) (4,661) 1,510 2,317 3,314 Plant and equipment 51,813 50,469 52,421 Accumulated depreciation and impairment (30,407) (27,108) (26,581) 21,406 23,361 25,840 Total plant and equipment at cost 58,256 58,079 60,396 Accumulated amortisation, depreciation and impairment (35,340) (32,401) (31,242) 22,916 25,678 29,154 Plant and equipment Plant and under lease equipment Total plant and equipment Cost: At 1 July 7,610 50,469 58,079 Additions - 1,636 1,636 Acquired on acquisition - 305 305 Transfers (1,024) 1,024 - Disposals (143) (1,621) (1,764) At 6,443 51,813 58,256 Accumulated Amortisation and Depreciation: At 1 July 5,293 27,108 32,401 Charge for period 786 3,917 4,703 Transfers (1,003) 1,003 - Disposals (143) (1,621) (1,764) At 4,933 30,407 35,340 Net Book Value: At 1,510 21,406 22,916 Plant and equipment Plant and under lease equipment Total plant and equipment Cost: At 1 July 8,185 49,624 57,809 Additions - 5,786 5,786 Acquired on acquisition - 134 134 Transfers - - - Disposals (210) (3,123) (3,333) At 7,975 52,421 60,396 Accumulated Amortisation and Depreciation: At 1 July 3,951 25,785 29,736 Charge for period 920 3,919 4,839 Transfers - - - Disposals (210) (3,123) (3,333) At 4,661 26,581 31,242 Net Book Value: At 3,314 25,840 29,154 15
Notes to the Financial Statements (Continued) FOR THE HALF YEAR ENDED 31 DECEMBER 8. INTANGIBLE ASSETS AND GOODWILL 30 June $ 000 $ 000 $ 000 Customer database 720 720 720 Accumulated amortisation (720) (720) (720) - - - Software 6,684 6,353 5,977 Accumulated amortisation (5,472) (4,945) (4,463) 1,212 1,408 1,514 Goodwill 74,915 68,898 68,898 Accumulated amortisation and impairment (41,213) (21,816) (21,816) 33,702 47,082 47,082 Customer database, software and goodwill 82,319 75,971 75,595 Accumulated amortisation and impairment (47,405) (27,481) (26,999) 34,914 48,490 48,596 Customer database Software Goodwill Total intangible assets and goodwill Cost: At 1 July 720 6,353 68,898 75,971 Additions - 336-336 Acquired on acquisition - - 6,017 6,017 Disposal - (5) - (5) At 720 6,684 74,915 82,319 Accumulated Amortisation and Impairment: At 1 July 720 4,945 21,816 27,481 Charge for period - 532-532 Impairment - - 19,397 19,397 Disposal - (5) - (5) At 720 5,472 41,213 47,405 Net Book Value: At - 1,212 33,702 34,914 Total intangible Customer database Software Goodwill assets and goodwill Cost: At 1 July 720 5,084 67,441 73,245 Additions - 917-917 Acquired on acquisition - - 1,457 1,457 Disposal - (24) - (24) At 720 5,977 68,898 75,595 Accumulated Amortisation and Impairment: At 1 July 720 3,979 21,816 26,515 Charge for period - 508-508 Disposal - (24) - (24) At 720 4,463 21,816 26,999 Net Book Value: At - 1,514 47,082 48,596 16
Notes to the Financial Statements (Continued) FOR THE HALF YEAR ENDED 31 DECEMBER 9. IMPAIRMENT TESTING OF GOODWILL a) Impairment tests for goodwill Goodwill is allocated to the Group s cash-generating units, defined as the Telecommunications and Computing business segments being the lowest levels at which cash flows can be independently ascertained for the purposes of discounting future cash flows. Telecommunications Computing Carrying amount of goodwill $ 000 $ 000 $ 000 At 1 July 26,228 19,397 45,625 Additions 1,457-1,457 At 27,685 19,397 47,082 At 1 July 27,685 19,397 47,082 Additions 6,017-6,017 Impairment charge (19,397) (19,397) At 33,702-33,702 b) Key assumptions used for fair value less cost to sell calculations The recoverable amount of the cash generating units is determined using the value in use method for the Telecommunications segment on an annual basis and the fair value less cost to sell method for the Computing segment. The fair value less cost to sell method was applied to the Computing segment for the first time in to provide a more appropriate method to value a business where the portfolio of assets is undergoing material change, and where the use of the value in use method would undervalue the recoverable amount relating to the segment. Key assumptions included in the cash flow projections for the 5 year period include: - Maintaining the current portfolio of APR format stores. This is significant reduction in the expansion plans that were embedded in the assumptions at 30 June. - Expansion of the existing Business Education Consultant framework - Pre-tax discount rate of 14.9% The assumptions have been determined utilising historical performance and recent performance of APR format stores that have become established in their locations. At no impairment indicators were evident in the Telecommunications segment and as such no impairment testing of goodwill was deemed necessary for this segment. c) Impairment charge As a result of an internal reassessment of strategy following the acquisition of Camelon I.T. and changes to the agreement with Telstra, the Group revisited the recoverable amount assumptions and calculations for the Computing segment. As a result an impairment charge of $19.4 million was made against goodwill in the period to reflect a reduction in the recoverable amount relating to the Group s investment in Next Byte, a business acquired by the Group in 2007. A number of changes have occurred within both the marketplace and to the competitive landscape in which Next Byte competes. Whilst the Group intends to deliver improved financial returns from the business, its attractiveness has diminished relative to more profitable growth opportunities in the Telecommunications business channel. Consequently, a decision has been made to redirect some human and capital resources away from Next Byte and, as a result, financial aspirations for the business have been reduced and an impairment charge against the carrying value of goodwill was deemed necessary. 17
Notes to the Financial Statements (Continued) FOR THE HALF YEAR ENDED 31 DECEMBER 10. CONTRIBUTED EQUITY 30 June $ 000 $ 000 $ 000 Ordinary shares Issued and fully paid 13,079 13,079 13,079 Movements in ordinary shares on issue Number of shares $ 000 At 1 July 142,499,800 13,079 At 142,499,800 13,079 At 1 July 142,499,800 13,079 At 142,499,800 13,079 Terms and conditions of contributed equity Ordinary shares entitle their holder to the right to receive dividends as declared and, in the event of winding up the company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the company. 18
Notes to the Financial Statements (Continued) FOR THE HALF YEAR ENDED 31 DECEMBER 11. BUSINESS COMBINATIONS On 1 October, Fone Zone Pty Ltd acquired 100% of the voting shares of Monserrat Moon Pty Ltd trading as Camelon I.T., an unlisted company based in Australia specialising in providing cloud technology solutions, managed data networks, and unified communications in the small to medium business and enterprise sector. The acquisition bolsters the Groups capability to offer ICT services to business and government customers, and positions the Group to take advantage of the shift to cloud-based computing underway. The initial cost of the combination was $3.7 million, with additional amounts payable on delivery of performance targets over the next three years. Details of the provisional purchase consideration, the provisional net assets acquired and the goodwill are as follows: Half year $ 000 Purchase consideration: Cash paid 3,700 Contingent consideration (provisional) 1,968 Total purchase consideration 5,668 The assets and liabilities recognised as a result of the acquisition are as follows: Fair Value $ 000 Cash and cash equivalents 41 Receivables 1,400 Property, plant and equipment 305 Deferred tax asset 302 Other assets 142 Payables (241) Bank Overdraft (86) Employee benefit liabilities, including superannuation (291) Borrowings (189) Provisions (655) Tax payable (1,070) Other liabilities (7) Net identifiable assets acquired (349) Add: Goodwill 6,017 Acquisition related costs Acquisition related costs of $53,754 are included in administration expenses in the consolidated statement of comprehensive income. 5,668 19
Notes to the Financial Statements (Continued) FOR THE HALF YEAR ENDED 31 DECEMBER 11. BUSINESS COMBINATIONS (continued) Contingent consideration In the event that certain pre-determined EBITDA targets are met by 30 September 2016, additional consideration of up to $3.7m may be payable in cash on 1 October 2016. The potential undiscounted amount of all future payments that the Group could be required to make under this arrangement is between $0 and $3,700,000. The fair value of the contingent consideration arrangement of $1,968,137 was estimated by applying the income approach. The fair value estimate is based on a discounted assumed probabilityadjusted profit contribution to the Group of $15,400,000 to $18,300,000 over the three years ending 30 September 2016. Acquired receivables The fair value of acquired trade receivables is $1,399,837. The gross contractual amount for trade receivables due is $1,539,160, of which $139,323 is expected to be uncollectible. Revenue and profit contribution* The acquired business contributed revenues of $798,611 and EBITDA of ($241,490) to the Group for the period from acquisition date to. On the basis of trading results from the date of acquisition to end of half year, had the business been acquired on 1 July contributions to the Group for revenue and EBITDA is estimated at $1,597,222 and ($482,980) respectively. *EBITDA has been stated in the place of NPAT for business combinations revenue and profit contribution as depreciation, finance costs and income tax are attributed only to the Consolidated/Parent entity and are not calculated at an individual business unit level. Cash flow information Half year $ 000 $ 000 Outflow of cash to acquire business, net of cash acquired Cash consideration 3,700 1,624 Acquisition related costs 54-3,754 1,624 Less: Balances acquired Cash 41 - Bank overdraft (86) - 3,709 1,624 3,709 1,624 12. CONTINGENCIES There are no contingent assets or liabilities as at the reporting date. 13. EVENTS OCCURRING AFTER BALANCE SHEET DATE As announced to the market on 10 December, under new arrangements agreed with our key strategic partner Telstra, the Group has confirmed the acquisition of the following stores currently owned by Telstra. Management of these stores was taken over on 19 February 2014 on a deferred acquisition basis with the final acquisition date being 25 June 2014. Purchase Consideration $ 000 Rockingham Telstra Licensed Store 1,644 Bunbury Telstra Licensed Store 1,602 Mackay Telstra Licensed Store 2,360 20
Directors Declaration VITA GROUP LIMITED INTERIM FINANCIAL REPORT In the directors opinion: (a) the financial statements and notes set out on pages 6 to 20 are in accordance with the Corporations Act 2001, including: (i) (ii) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and giving a true and fair view of the consolidated entity s financial position as at and of its performance for the half year ended on that date; and (b) there are reasonable grounds to believe that Vita Group Limited will be able to pay its debts as and when they become due and payable. This declaration is made in accordance with a resolution of the directors. Dick Simpson Chairman Maxine Horne Director Brisbane Date: 28 February 2014 21
Independent auditor s review report to the members of Vita Group Limited Report on the Half-Year Financial Report We have reviewed the accompanying half-year financial report of Vita Group Limited (the Company), which comprises the balance sheet as at, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the half-year ended on that date, selected explanatory notes and the directors' declaration for Vita Group Limited (the consolidated entity). The consolidated entity comprises the company and the entities it controlled during that half-year. Directors' responsibility for the half-year financial report The directors of the company are responsible for the preparation of the half-year financial report that gives a true and fair view in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the half-year financial report that is free from material misstatement whether due to fraud or error. Auditor s responsibility Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Australian Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the consolidated entity s financial position as at and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. As the auditor of Vita Group Limited, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report. A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Independence In conducting our review, we have complied with the independence requirements of the Corporations Act 2001. Conclusion Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of Vita Group Limited is not in accordance with the Corporations Act 2001 including: a) giving a true and fair view of the consolidated entity s financial position as at and of its performance for the half-year ended on that date; PricewaterhouseCoopers, ABN 52 780 433 757 Riverside Centre, 123 Eagle Street, BRISBANE QLD 4000, GPO Box 150, BRISBANE QLD 4001 T: +61 7 3257 5000, F: +61 7 3257 5999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation.
b) complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. Matters relating to the electronic presentation of the reviewed financial report This review report relates to the financial report of the company for the half-year ended included on Vita Group Limited s web site. The company s directors are responsible for the integrity of the Vita Group Limited web site. We have not been engaged to report on the integrity of this web site. The review report refers only to the statements named above. It does not provide an opinion on any other information which may have been hyperlinked to/from these statements. If users of this report are concerned with the inherent risks arising from electronic data communications they are advised to refer to the hard copy of the reviewed financial report to confirm the information included in the reviewed financial report presented on this web site. PricewaterhouseCoopers Kim Challenor Brisbane Partner 28 February 2014