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ISA HOLDINGS LIMITED - Short-Form Announcement: Abridged Summarised Consolidated Audited Results for the Year Ended 29 February 2020

Release Date: 29/05/2020 14:42
Code(s): ISA     PDF:  
Wrap Text
Short-Form Announcement:  Abridged Summarised Consolidated Audited Results for 
the Year Ended 29 February 2020

ISA Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1998/009608/06)
Share code: ISA
ISIN: ZAE000067344
(“ISA” or “the Company” or “the Group”)

SHORT-FORM ANNOUNCEMENT: ABRIDGED SUMMARISED CONSOLIDATED AUDITED RESULTS FOR
THE YEAR ENDED 29 FEBRUARY 2020


                                                           Audited     Audited
                                                              year        year
                                                             ended       ended
                                                         29 Feb 20   28 Feb 19
                                               Change        R'000       R'000
Highlights from Statement
of Comprehensive Income

Turnover                                         -16%      101,219     120,073
Profit before
Other income and expenses                        -11%       46,248      52,093
Profit after tax                                 -22%       23,425      29,957
Earnings per share (cents)                       -22%         15.0        19.2


Highlights from Statement of
Financial Position

Total assets                                     -34%       80,610     121,711
Cash and cash equivalents                        -27%       45,929      63,047
Equity                                           -39%       57,627      95,354
Total liabilities                                -13%       22,802      26,357

Highlights from Statement of
Changes in Equity

Dividends paid during the year                   188%       61,152      21 213

Net asset value per share
at end of period (cents)                         -40%         36.9        61.1
Headline earnings per
share (cents)*                                   -22%         15.0        19.2
Diluted headline earnings per
share (cents)*                                   -22%         15.0        19.2


* There have been no reconciling items that would result in a change to the
  Headline earnings per share and the Diluted headline earnings per share.

Operational Review

I am pleased to present our results for the full year ended 29 February 2020
(“the current reporting period”), which continued to be underpinned by a high
proportion of recurring revenue, a robust financial position and strong cash
flows. In the context of the exceptionally challenging trading conditions in
which we operate, together with the extreme pressure on the local economy,
overall performance remains satisfactory.

During the current reporting period, two key factors marred our performance
when viewed against that of our previous corresponding reporting period (“prior
reporting period”), namely the reseller tier downgrade by one of our strategic
vendor partners and the effects of the volatile and fluctuating exchange rate.

As explained via the Stock Exchange News Service (“SENS”), Check Point
downgraded our position in their reseller program from the highest tier
available to the lowest. Despite our reconciliatory efforts, it seems unlikely
that we will be able to re-establish a healthy and trustworthy relationship
with Check Point any time soon, given their untraditional and unreasonable
demands for reinstatement. As anticipated, the downgrade has and will continue
to have a negative effect on turnover, but this is expected to improve over
time as our plans to transition our customers to those recently onboarded
‘NextGen’ security brands that have already displaced Check Point’s leadership
position both locally and on the global stage takes shape.

Forex fluctuation and volatility is also a major factor in our business, for
two main reasons. Firstly, when the Rand price of imported goods increases
rapidly due to exchange rate fluctuation or volatility, customer budgets are
negatively affected and seldom have the flexibility needed to absorb the impact
of the change, which then adds pressure on anticipated deal-flows and margin.
Secondly, as a large portion of our cash is held in Dollars and Pounds, currently
accounting for 63% of our R45.9 million cash reserve, the revaluation of this
foreign currency through the statements of comprehensive income can have a
material effect on our results in any one reporting cycle.

Financial
Largely due to the Check Point downgrade, revenue decreased by 16% to
R101.2 million and profit before other income and expenses decreased by 11% to
R46.2 million compared to the prior reporting period of R52.1 million. While
this decrease in both revenue and gross profit is most unfortunate, I am
satisfied that management understand the cause for this decline and is fully
committed to executing the plans set in motion during the period under review,
while maintaining a heightened focus on overall customer experience and service
levels in order to mitigate the risk of us becoming too inwardly focused during
the transition. On a more pleasing note, the revenue contribution from our
Managed Security Services portfolio increased by a healthy 33% during the
current reporting period, which is partially a result of the favourable response
to our recently introduced range of advance threat detection and threat seeking
services.

Operating expenses decreased by a pleasing 10% to R21.5 million during the
current reporting period, from R23.9 million in the prior reporting period,
which reflects management’s continued focus on cost containment within the
business. Profits derived from the revaluation of our foreign cash reserves
during the current reporting period unfortunately reduced by R4.8 million
compared to the profits recorded in the prior reporting period, effectively
declining from R7.4 million to R2.5 million. If we were to exclude the effect
of foreign currency revaluation in both reporting periods, profit before tax
would have decreased by 13% in the current reporting period, as opposed to the
22% decline actually recorded, which would be palatable in context of the large
decline in turnover.

During the period under review, our business partner settled their loan thereby
reducing loans receivable to R2.5 million from R24.1 million. Net of the R61.1
million cash distribution to shareholders during the period under review, as
detailed below, our cash reserve reduced to R45.9 million from R63.0 million in
the prior reporting period. Total comprehensive income unfortunately decreased
to R23.4 million during the current reporting period, from R29.9 million, which
decrease represents a decline in headline and earnings per share to 15.0 cents
from 19.2 cents achieved in the prior reporting period.

Distribution
As referred above, dividends amounting to R61.1 million were declared and paid
to shareholders during the period under review, representing a gross
distribution of 39.2 cents per share, comprising 19.2 cents per share ordinary
dividend and 20.0 cents per share special dividend. After substantial reflection
and consideration, the board has decided that it will not distribute further
cash reserves at this time, as we believe it prudent to preserve the strength
of our balance sheet through these uncertain times, as well as to provide
management the headroom needed to focus on building a robust and sustainable
revenue structure around the recently onboarded security brands. As such, the
board has not declared a final dividend for this year.

Market and prospects
In the short to medium term, I anticipate a sharp reduction in revenue due to
the aforementioned Check Point downgrade, as well as due to the severe economic
damage and business disruption caused by the coronavirus lockdown legislation
imposed by our government in an attempt to manage the COVID-19 pandemic. While
an early reflection of our sales pipeline is encouraging, especially noting
those loyal customers and new prospects that are excited at the prospect of
moving over to the more robust and scalable ‘NextGen’ security technologies
that we now have to offer, the journey to reaching and exceeding our former
turnover and profitability levels is likely to be somewhat tougher and longer
than initially anticipated.

In the longer term however, I continue to be optimistic about our long-term
prospects, as the key drivers of the information security market remain robust.
With the continued evolution and persistence of threats and attack vectors
against corporate information and IT resources, together with the increased
regulatory and legislative compliance requirements, stakeholders continue to
elevate the importance of IT security within their organisations. By leveraging
this positive sentiment towards the information and infrastructure security
market, as well as our positioning as a thought leader in this niche market
segment, we are likely to continue delivering above average tangible returns
over time.

Conclusion
On behalf of the board, I would like to take this opportunity to thank the ISA
team for their continued dedication and hard work. My appreciation is also
extended to my colleagues on the board for their wise counsel and valuable
input. Finally, I thank all stakeholders, customers and vendors for their
support, and I look forward to meeting shareholders at the Annual General
Meeting to be held on Wednesday, 1 July 2020.

Integrated Annual Report
Shareholders are advised that the integrated annual report has been distributed
to shareholders and will be available on the company’s website at www.isa.co.za.

Notice of Annual General Meeting
Notice is hereby given that the Annual General Meeting of shareholders of ISA
(“Annual General Meeting”) will be held at 10:00 on Wednesday, 1 July 2020.

SHORT-FORM ANNOUNCEMENT
The content of this short-form announcement is the responsibility of the
directors of the company. The short-form announcement contains only a summary
of the information in the full announcement which is available at:
https://senspdf.jse.co.za/documents/2020/jse/isse/isa/ye20.pdf and   is   also
published         on         the          Company’s         website         at
http://www.isa.co.za/includes/downloadFile.php?display=Full_Announcement_2020
.pdf (“Full Announcement”), and accordingly does not contain full or complete
details. Any investment decisions by investors or shareholders should be based
on the consideration of the Full Announcement.
The information in this short-form announcement has been extracted from the
Abridged Summarised Consolidated Audited Results for the year ended 29 February
2020, but the short-form announcement itself has not been reviewed or audited
by the company's auditors.

The Abridged Summarised Consolidated Audited Results for the year ended
29 February 2020 and have been audited by Mazars, who expressed an unmodified
audit opinion. The key audit matters addressed in the auditor’s report are the
impact of the COVID-19 lockdown legislation on the financial statements and the
impact of the loss of a significant supplier.

Due to the lockdown restrictions imposed as a result of the COVID-19 pandemic,
neither the short-form announcement nor the Full Announcement will be available
for inspection at the registered offices of ISA or the Designated Adviser,
Merchantec Capital, during business hours. However, copies thereof may be
obtained at no cost on request from the Company Secretary who is contactable on
+27 11 325 6363 or isa@acorim.co.za.


For and on behalf of the board,

Clifford Katz
Chief Executive Officer
Johannesburg
29 May 2020

Directors: CS Katz (Chief Executive Officer), PJG Green (Chief Technical
Officer), P Mogoboya (Financial Director), AJ Naidoo#, C. Pillay#, DC Seaton*,
N Maphothi*, O Seku*(Chairperson)

# Non-executive
* Independent non-executive

Designated Advisor: Merchantec Capital

www.isaholdings.co.za

Date: 29-05-2020 02:42:00
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