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GIJ
GIJ
GIJ - Gijima Ast Group - Audited results for the year ended 30 June 2007
Gijima Ast Group Limited
Registration number 1998/021790/06
Share code: GIJ
ISIN: ZAE000064606
Audited results for the year ended 30 June 2007
HIGHLIGHTS
- EPS up 122%
- HEPS up 89%
- Maiden dividend declared
Abridged consolidated income statement
for the year ended 30 June 2007
Audited Audited
30 June 2007 30 June 2006
Notes R`000 R`000
Continuing operations
Revenue 2 017 426 1 951 041
Other operating income 38 797 2 299
Income 2 056 223 1 953 340
Earnings before interest, tax, 120 138 106 675
depreciation and amortisation
charges (EBITDA)
Depreciation and amortisation (25 472) (34 954)
charges
Operating profit 5 94 666 71 721
Financial income 12 580 7 289
Financial expenses (31 281) (9 136)
Net financing costs 6 (18 701) (1 847)
Profit before tax 75 965 69 874
Income tax expense (21 706) (30 518)
Profit after tax 54 259 39 356
Share of profit/(loss) of 2 350 (11)
associates
Profit after tax from continuing 56 609 39 345
operations
Discontinued operation
Loss for the year from a - (1 319)
discontinued operation, net of
tax
Profit for the year 56 609 38 026
Attributable to
Equity holders of the parent 53 742 22 846
Minority interest 2 867 15 180
56 609 38 026
Calculation of headline earnings
Profit attributable to equity 53 742 22 846
holders of the parent
Impairment of goodwill - 4 000
Impairment of assets and - 1 000
investments
(Profit)/loss on sale of (290) 406
businesses and properties
Headline earnings 53 452 28 252
Basic earnings per ordinary share 5,57 2,51
(cents) from continuing
operations
Diluted earnings per ordinary 5,57 2,51
share (cents) from continuing
operations
Headline earnings per ordinary 5,54 2,93
share (cents)
Diluted headline earnings per 5,54 2,93
ordinary share (cents)
Basic loss per ordinary share - (0,14)
(cents) from discontinued
operations
Diluted loss per ordinary share - (0,14)
(cents) from discontinued
operations
Weighted average number of shares 964 667 964 667
(000`s)
Diluted number of shares (000`s) 964 667 964 667
Number of shares in issue (000`s) 964 667 964 667
Notes to the abridged consolidated income statement
1 Reporting entity
These abridged GIJIMA AST GROUP LIMITED ("the Group") financial results for the
year ended 30 June 2007 constitute a summary of the Group`s audited financial
statements. They have been prepared in accordance with International Financial
Reporting Standards and the South African Companies Act 1973, as amended.
KPMG Inc.`s unmodified auditors` reports included in the annual financial
statements and on the summarised financial statements contained in this abridged
report are available for inspection at the company`s registered office.
2 Significant accounting policies
Except as described below, the accounting policies applied by the Group in these
abridged consolidated financial statements are the same as those applied by the
Group in its consolidated financial statements as at and for the year ended 30
June 2006.
The Group adopted an accounting policy in respect of the purchase of minority
interests. The recognition of an increase and decrease in ownership interests in
subsidiaries without a change in control is accounted for as an equity
transaction in the consolidated financial statements. Accordingly, any premium
or discount on subsequent purchases of an equity instrument from a minority
interest is recognised directly in the parent shareholders` equity.
3 Purchase of minority interest
During the year under review the purchase of the remaining 30% minority interest
of AST Distributed Technology Services (Pty) Limited ("DTS") was concluded. In
terms of the acquisition DTS declared a dividend of R36 million to Absa Bank
Limited ("Absa") and thereafter GijimaAst Holdings (Pty) Limited purchased the
DTS shares held by Absa for R45 million with effect from 1 July 2006. On 23
November 2006 the transaction became unconditional, resulting in DTS becoming a
wholly owned subsidiary.
4 Property transaction
The Group disposed of its entitlement to purchase a 50% share in the property
development entity owning the Samrand Campus for an amount of R33 million in
cash and R14,5 million payable at 30 June 2008. A profit on the disposal of this
derivative financial instrument of R34,2 million has been recognised in the
current year`s financial statements.
Audited Audited
30 June 2007 30 June 2006
R`000 R`000
5 Operating profit
The following material items have been
included in the calculation of operating
profit
Profit on sale of derivative financial 35 373 140
instrument and investment
Exchange rate gains on translation 12 562 7 486
Profit/(loss) on sale of businesses and 290 (406)
property, plant and equipment
Restructuring and integration costs (35 592) -
Impairment of assets and investments - (1 000)
Amortisation of client contracts - (5 818)
Impairment of goodwill - (4 000)
12 633 (3 598)
6 Net financing costs
Interest received 12 580 7 289
Fair value adjustment on trade (1 390) 3 022
receivable/derivative financial
instrument
Interest paid (29 891) (12 158)
(18 701) (1 847)
7 Contingent liabilities
At 30 June 2007 the Group had contingent liabilities in respect of registered
performance bonds, bank lease or other guarantees to the value of R2,5 million
(June 2006: R3,3 million).
Abridged consolidated segmental analysis
for the year ended 30 June 2007
Audited Audited
30 June 2007 30 June 2006
R`000 R`000
Revenue
Software and Professional Services 623 759 559 309
Industry Niche Solutions 314 456 249 863
Infrastructure Services 1 079 211 1 141 869
Consolidated revenue 2 017 426 1 951 041
Segment results
Software and Professional Services 26 939 20 275
Industry Niche Solutions 1 754 5 771
Infrastructure Services 73 588 80 640
Corporate and other (20 248) (31 367)
Restructuring and integration (costs) and 12 633 (3 598)
once-off gains (refer note 5)
Consolidated operating profit 94 666 71 721
Abridged consolidated balance sheet
as at 30 June 2007
Audited Audited
30 June 30 June
2007 2006
R`000 R`000
ASSETS
Non-current assets 317 846 327 973
Property, plant and equipment 61 495 57 075
Intangible assets 112 905 101 715
Derivative financial instrument - 12 076
Investment in associates - 196
Deferred tax asset 143 446 156 911
Current assets 693 666 624 709
Inventories 41 923 45 841
Short-term loans - 4 191
Trade and other receivables 473 577 393 548
Financial assets at fair value through - 670
profit and loss
Current tax asset 7 383 3 901
Cash and cash equivalents 170 783 176 558
Total assets 1 011 512 952 682
EQUITY AND LIABILITIES
Total equity 264 154 305 050
Equity attributable to equity holders of 264 154 264 271
the parent
Minority interest - 40 779
Non-current liabilities 305 652 184 441
Interest-bearing borrowings 263 124 140 530
Operating lease liability 23 080 22 067
Deferred tax liability 19 448 21 844
Current liabilities 441 706 463 191
Trade and other payables 396 502 367 483
Provisions 41 663 53 544
Bank overdrafts 337 2 547
Amounts due to vendors - 1 380
Current tax liability 3 204 38 237
Total equity and liabilities 1 011 512 952 682
Abridged consolidated cash flow statement
for the year ended 30 June 2007
Audited Audited
30 June 2007 30 June 2006
Notes R`000 R`000
Cash flows from operating
activities
Cash generated from operations 86 757 119 808
before working capital changes
Working capital changes (30 598) (9 564)
Net financing costs (16 160) (4 869)
Normal tax paid (49 873) (9 338)
Cash (utilised by)/generated (9 874) 96 037
from operating activities
Cash flows from investment
activities
Purchase of minority interest 3 (82 702) -
Purchase of remaining share of (2 270) -
joint venture
Vendor payments for past (1 380) 1 380
acquisitions
Proceeds from sale of 4 945 -
investments/business
Cash obtained from acquisition - 355
Acquisition expenses - (600)
Purchase of software to maintain (8 881) (1 668)
operations
Purchase of property, plant and (25 997) (26 053)
equipment to maintain
operations, net of proceeds of
disposals
Cash utilised by investment (116 285) (26 586)
activities
Cash flows from financing
activities
Net proceeds from long-term 122 594 47 719
borrowings
Cash inflow from financing 122 594 47 719
activities
Net (decrease)/increase in cash (3 565) 117 170
and cash equivalents
Cash and cash equivalents at the 174 011 56 841
beginning of the year
Cash and cash equivalents at the 170 446 174 011
end of the year
Abridged consolidated statement of changes in equity
for the year ended 30 June 2007
Non-
Distribut- distribut-
Share Share able able
R`000 capital premium reserves reserves
Group
Balance at
1 July 2005 964 646 525 (371 387) (29 327)
Share-based payment 429
transactions
Currency translation (7 208)
differences
Revaluation of land and 1 429
buildings (net of tax)
Total income and expense 429 (5 779)
recognised directly in
equity
Profit for the year 22 846
Balance at 30 June 2006 964 646 525 (348 112) (35 106)
Share-based payment 1 373
transactions
Currency translation (17 515)
differences
Revaluation of land and 1 339
buildings net of tax)
Decrease in distributable (39 056)
reserves from acquisition
Total income and expense (37 683) (16 176)
recognised directly in
equity
Profit for the year 53 742
Balance at 30 June 2007 964 646 525 (332 053) (51 282)
Minority Total
R`000 Total interest equity
Group
Balance at
1 July 2005 246 775 25 599 272 374
Share-based payment 429 429
transactions
Currency translation (7 208) (7 208)
differences
Revaluation of land and 1 429 1 429
buildings (net of tax)
Total income and expense (5 350) (5 350)
recognised directly in
equity
Profit for the period 22 846 15 180 38 026
Balance at 30 June 2006 264 271 40 779 305 050
Share-based payment 1 373 1 373
transactions
Currency translation (17 515) (17 515)
differences
Revaluation of land and 1 339 1 339
buildings net of tax)
Decrease in distributable (39 056) (43 646) (82 702)
reserves from acquisition
Total income and expense (53 859) (43 646) (97 505)
recognised directly in
equity
Profit for the year 53 742 2 867 56 609
Balance at 30 June 2007 264 154 - 264 154
OVERVIEW
Operating profit increased by 32% despite reported income only increasing by
5,3% for the year. Earnings per share more than doubled from 2,51 cents to 5,57
cents (in line with the trading update published on SENS on 20 August 2007).
However, both the 2006 and 2007 financial results included a number of
significant, unusual income and expense items as set out in note 5 to the income
statement.
The results are a reflection of the highly competitive market environment in
which we operate, with ongoing client pressure to reduce costs and the slow pace
of major public sector tender awards for which many Information and
Communication Technology ("ICT") players have created capacity.
After completion of the buy-out of the 30% minority interest in DTS for R85
million, including taxes and excluding transaction costs, we retain a strong
financial structure with cash balances of R170 million.
Now that the merger of Gijima and AST has been largely bedded down, the DTS
minority take-out effected and the business rationalisation mostly completed, we
have declared a maiden dividend of 1,5 cents per share.
OPERATIONAL REVIEW
Although deal flow was impacted by ongoing delays in major public sector tender
awards we have nevertheless concluded a number of substantial projects and
outsource contracts in both the public and private sectors. We continue to
optimise service delivery and overhead costs to counter ongoing commoditisation
pressure in traditional outsourcing. We have significantly reduced our cost
structure and have taken steps to eliminate unprofitable and non-core areas of
business.
Regulatory changes in the telecommunications industry gained momentum, with new
opportunities for ICT service providers including increased connectivity choices
and the potential to develop owned bandwidth infrastructure. The Group remains
committed to its historic investments in networking and communications
capability and will continue to evaluate market dynamics and broaden its
footprint in order to benefit from opportunities in the sector.
Our Infrastructure Services division was impacted by client cost reduction
pressure, with reported revenue of R1,1 billion, declining by 5,5%. Integration
of the field forces and greater use of remote tools have been effective in
reducing service delivery cost but were insufficient to fully off-set pressure
on margins, with operating profit falling by 8,7%. Our network offering
performed well, supported by increasing demand for unified communications. The
NEC Philips and Networks competency centres successfully added additional
services to sales activities, protecting profitability against decreasing
margins on hardware sales.
Our Software and Professional Services division, housing our solutions oriented
competency centres, continues to benefit from the restructuring initiated 18
months ago, with revenue increasing by 11,5% and operating profit up by 33%. The
Microsoft Professional Services competency centre performed well and made
progress in building the foundation for higher margin, repeatable business. ERP
Solutions benefited from high levels of activity in the South African SAP
environment, with good deal flow in the outsource support environment which
commenced late in the financial year and will flow into the next financial year.
Our Professional Staffing Solutions competency centres performed well in a
market driven by the general shortage of technical skills.
Our Industry Niche Solutions division delivered revenue growth of 26% but
reported a reduced operating profit due to a disappointing performance by the
Manufacturing Solutions competency centre. Financial and Retail Services
continued to improve operating performance by penetrating the large banks and
retaining its leadership in cheque processing with strong annuity revenue. The
Mining Solution centre returned lower profits due to significant research and
development expenditure incurred to expand its proprietary software range
coupled with the roll-out of its internationalisation programme, establishing a
strong base for future growth.
Our Corporate Support costs showed a reduction of 35% due to tighter cost
controls.
Net financing costs of R18,7 million were associated with the R256 million
securitisation of trade debtors which was implemented on 31 July 2006. The
company is rated one notch above investment grade rating by CA-Ratings and its
blue chip debtor`s book has a zaAA rating.
Cash generated from operations before working capital changes decreased by 27,6%
to R86,8 million (2006: R119,8 million), predominately due to short-term
provisions paid out during the financial year. High trade and other receivables
of R473,6 million, 67% of which were current, were reported due to large levels
of procurement of assets on behalf of clients during the months of May and June
2007. The higher net financing costs and taxation paid relating to historic DTS
financial structures also contributed to cash utilised by operating activities
of R9,9 million compared to cash generated of R96,0 million in 2006.
RESTRUCTURING COSTS AND ONCE-OFF GAINS
Significant costs totalling R35,6 million were incurred during the year in
integrating the now wholly-owned DTS operation into the other Group operations,
and in other once-off reorganisation costs.
In order to further reduce costs and improve communication and synergies between
divisions, we have decided to centralise our Gauteng operations in Samrand. We
entered into an arrangement with our present landlord in Samrand to erect an
additional office block adjacent to our present premises to house our other
Gauteng operations, and entered into a new 10 year lease covering the combined
premises. At the same time we sold our entitlement to ownership of 50% of the
current and new premises for a combined R47,5 million, yielding a profit of
R34,2 million, based on the prior carrying value of the entitlement. This
resulted in a cash inflow of R33 million during the year with a further R14,5
million to be received on completion of the new block, in mid 2008.
TRANSFORMATION
We have maintained our focus on transformation and successfully attracted a
growing pool of black talent in an industry where this is characterised as
scarce. We have also implemented a senior staff leadership management training
programme with Gordon Institute of Business Science ("GIBS"), coupled with an
emerging talent programme for entry level management. Our excellent empowerment
credentials are reflected in our AA Empowerdex BEE rating.
DIVIDEND DECLARATION
Notice is hereby given that the Board has declared a maiden dividend of 1,5
cents per ordinary share payable to shareholders recorded in the books of the
company at the close of business on Friday, 23 November 2007. The proposed
dividends are to be confirmed at the annual general meeting to be held on
Friday, 9 November 2007. An announcement confirming the payment of the proposed
dividends will be made on SENS on Friday, 9 November 2007 and in the press on
Saturday, 10 November 2007.
The salient dates are as follows:
Last date to trade cum dividend Friday, 16 November 2007
Securities start trading ex dividend Monday, 19 November 2007
Record date Friday, 23 November 2007
Payment date Monday, 26 November 2007
The dividend is declared in the currency of the Republic of South Africa.
Share certificates may not be dematerialised or rematerialised between Monday,
19 November 2007 and Friday, 23 November 2007, both dates inclusive.
PROSPECTS
Recently won major deals together with further prospects in both the private and
public sectors are expected to lead to improved revenue and earnings growth in
the year ahead.
BOARD OF DIRECTORS
Our former chairman Hans Smith, together with Warren Drue, Johann Potgieter and
Cheslyn Mostert, resigned from the Board during the year. They all played
significant roles in the successful merger of Gijima and AST and we express our
appreciation to them for their contributions. We also pay tribute to John Miller
who retired as CEO at the end of the financial year, but who will stay on as a
non-executive director. John`s steadfast commitment during his seven years with
the Group was instrumental in restoring the company to its position as a leader
in the industry and in facilitating the Gijima merger with AST.
We welcome our incoming CEO Jonas Bogoshi, and look forward to him successfully
leading the Group into the future. Jonas Bogoshi joined us in July 2007.
RW Gumede CJH Ferreira
Executive Chairman Financial Director
28 August 2007
Directors:
RW Gumede (Chairman),
PJ Bogoshi (Chief Executive Officer)**
CJH Ferreira (Financial Director),
CP Potgieter (Chief Operating Officer),
Dr NJ Dlamini*, M MacDonald*, NI Mlhongo*
JE Miller*, K Mpinga*, AFB Mthembu*,
JCL van der Walt*
* Non-executive
** Appointed 1 July 2007
Company Secretary:
JC Rademan
Registered Office:
47 Landmarks Avenue, Kosmosdal
Samrand, South Africa
(012) 675 5000
Transfer Secretaries
Link Market Services SA (Pty) Limited
(Registration number 2000/007239/07)
5th Floor, 11 Diagonal Street, Johannesburg, 2001
(PO Box 4844, Johannesburg, 2000)
www.gijima.com
Date: 29/08/2007 07:58:18 Produced by the JSE SENS Department.
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