JSE-listed ConvergeNet, which is trading under cautionary, expects to report a full-year trading loss, and says both earnings and headline earnings per share will slump substantially.
The group, which previously told shareholders that earnings and headline earnings would be at least 20% lower in the full-year, says earnings will fall 282%, while headline earnings will be up to 219% lower for the 12 months to August. It also restated its interim loss, which has become wider, due to an error in calculating dividend tax.
However, despite the negative update and adjustment to its interims, the group's shares closed 4.55%, or a cent, higher, at 23c. ConvergeNet also issued a cautionary, indicating that it was in talks around buying a minority stake in its "major subsidiaries", as well as a potential empowerment deal.
ConvergeNet owns stakes in Sizwe, Structured Connectivity Solutions and Telesto, among others.
Start-up costs
ConvergeNet says the trading loss is mostly due to an adjustment to its deferred tax assets, a once-off impairment of goodwill and other financial assets, the cost of establishing its Africa operations in Gabon and Congo Brazzaville, and its investment into new businesses.
In addition, the trading loss has been attributed to costs linked with restructuring the company after it went through a change in control. In February, a consortium led by Trinity Asset Management bought a controlling stake in ConvergeNet, and now has control over 60% of the vote after minorities were offered 26c a share to sell out.
Last year, ConvergeNet reported revenue of R1 billion, a gain on 2010's R784 million. Basic earnings per share were 2.66c, a slight decline on the 2.89c reported in 2010, while headline earnings per share improved to 2.7c from 1.98c.
Tax mistake
The group also made an adjustment to its interim results, which resulted in a wider after tax loss as this figure increased by R4.8 million. At half year, it reported an after tax loss of R6.3 million.
As a result, its loss per share widened to 0.69c, while its headline loss per share moved to 2.36c. ConvergeNet initially reported a per share loss of 0.16c, while its headline loss per share was 1.84c.
The group explains that the adjustment was required because it made an "error" in its judgement on the future use of deferred tax on its available Secondary Tax on Companies credits as a result of the new dividends tax, which came into law this April.
Previously, companies were taxed on the dividends that they paid out to shareholders. However, after April, this burden shifted to the shareholders who benefit from dividends.
ConvergeNet's results should be published on 22 November.
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