| Thu 20 May 2010, 7:05 | | SPS - Spescom Limited - Unaudited interim results for the six months ended 31 |
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SPS
SPS
SPS - Spescom Limited - Unaudited interim results for the six months ended 31
March 2010
Spescom Limited
(Registration number 1987/001083/06)
Share code: SPS ISIN: ZAE000017919
SMART PEOPLE CLEVER SOLUTIONS
Unaudited interim results for the six months ended 31 March 2010
SALIENT FEATURES
- 6% improvement in gross profit
- 69% increase in earnings before tax
- 48% increase in headline earnings per share to 5,5 cents
- 27% increase in services revenue
- 28% increase in net asset value per share to 112,7 cents
- New division launched to service deregulating telecommunications sector
- Withdrawal of cautionary
SUMMARISED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
Six months Six months
ended ended Year ended
31 March 31 March 30 September
2010 2009 2009
R`000 R`000 R`000
Total revenue 163 023 168 681 362 667
Continuing operations
Turnover 160 252 166 454 358 564
Cost of sales (76 326) (86 974) (183 611)
Gross profit 83 926 79 480 174 953
Operating expenses after other (78 767) (76 215) (158 594)
income
Operating profit before interest 5 159 3 265 16 359
Investment income 1 614 1 846 3 652
Finance charges (1 579) (2 030) (4 050)
Net profit before taxation 5 194 3 081 15 961
Taxation (1 355) (410) (7 225)
Profit attributed to equity owners 3 839 2 671 8 736
of the parent
Other comprehensive income
Gains on property revaluation - - 15 203
Deferred tax and depreciation (173) - (3 779)
arising on property revaluation
gains
Exchange differences on (548) (654) (1 419)
translating foreign operations
Total comprehensive income for the 3 118 2 017 18 741
period attributable to equity
holders of the parent
Number of shares in issue 78 768 056 78 768 056 78 768 056
Number of shares on which earnings 72 320 538 72 320 538 72 230 513
per share is calculated
cents cents cents
Ratio analysis per share per share per share
Earnings per share
- basic, for profit for the 5,3 3,7 12,1
period attributable to ordinary
equity holders of the parent
- basic, for profit from 5,3 3,7 12,1
continuing operations for the
period attributable to ordinary
equity holders of the parent
- diluted, for profit for the 5,3 3,7 12,1
period attributable to ordinary
equity holders of the parent
Headline earnings per share
- Headline earnings per share 5,5 3,7 12,7
from continuing operations
- Diluted headline earningsper 5,5 3,7 12,7
share from continuingoperations
Net asset value per share 112,7 88,3 108,8
Headline earnings is calculated as
follows:
Basic earnings attributable to 3 839 2 671 8 736
ordinary equity holders of the
parent
Loss on sale of fixed assets 130 - 156
Impairment of asset - - 251
Profit for calculation of headline 3 969 2 671 9 143
earnings
SUMMARISED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
As at As at As at
31 March 31 March 30 September
2010 2009 2009
R`000 R`000 R`000
ASSETS
Non-current assets
Property, plant and equipment 56 938 44 200 58 227
Intangible assets 22 645 23 144 23 235
Investments and loans 5 684 5 682 5 684
Deferred taxation 8 674 13 404 9 255
93 941 86 430 96 401
Current assets 109 717 103 310 130 052
Inventories 10 882 17 610 12 097
Taxation prepaid 385 310 97
Trade and other receivables 60 594 61 948 54 062
Cash and cash equivalents 37 856 23 442 63 796
TOTAL ASSETS 203 658 189 740 226 453
EQUITY AND LIABILITIES
Capital and reserves
Share capital and premium 45 283 45 283 45 283
Non-distributable reserves 8 643 (736) 9 363
Distributable reserves 34 878 24 973 31 039
Ordinary shareholders` equity 88 804 69 520 85 685
Non-current liabilities 31 806 26 712 33 310
Deferred taxation 8 302 3 377 8 412
Deferred maintenance revenue 4 396 2 965 5 027
Interest bearing liabilities 19 108 20 370 19 871
Current liabilities 83 048 93 508 107 458
Current portion of interest 1 460 1 631 1 356
bearing liabilities
Bank finance 1 276 1 330 925
Taxation 2 299 3 252 3 462
Deferred maintenance revenue 22 434 26 683 28 255
Trade and other payables 55 579 60 612 73 460
TOTAL EQUITY AND LIABILITIES 203 658 189 740 226 453
SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited
Six months Six months
ended ended Year ended
31 March 31 March 30 September
2010 2009 2009
R`000 R`000 R`000
OPERATING ACTIVITIES
Cash generated by operations 13 305 14 016 34 274
Working capital changes (29 801) (22 684) 8 763
Cash (utilised)/generated by (16 496) (8 668) 43 037
operating activities
Net finance income/(expense) 35 (184) (399)
Taxation paid (2 573) (1 768) (3 439)
Net cash flow from operating (19 034) (10 620) 39 199
activities
INVESTING ACTIVITIES
Investment to maintain operations (6 268) (9 607) (18 891)
Repayment of loans - - (4)
Proceeds from disposals of - - 1 874
property, plant and equipment
(6 268) (9 607) (17 021)
FINANCING ACTIVITIES
Bank financing and facilities (308) 533 (643)
(repaid)/utilised
(308) 533 (643)
Net change in cash and cash (25 610) (19 694) 21 535
equivalents
Effects of foreign exchange (330) (582) (1 457)
Cash and cash equivalents:
- At beginning of period 63 796 43 718 43 718
- At end of period 37 856 23 442 63 796
SUMMARISED CONSOLIDATED SEGMENTAL REPORT
Unaudited Unaudited
Six months % Six months %
ended ended
31 March contribution 31 March contribution
2010 2009
R`000 R`000
SECTOR TURNOVER
Enterprise and 89 589 56 105 150 63
broadcast application
solutions
Telecommunications 15 268 9 17 907 11
Services and other 55 395 35 43 397 26
160 252 100 166 454 100
SECTOR OPERATING
PROFIT/(LOSS) BEFORE
INTEREST
Enterprise and 2 444 47 2 906 89
broadcast application
solutions
Telecommunications 103 2 (859) (26)
Services and other 2 612 51 1 218 37
5 159 100 3 265 100
Geographic turnover
South Africa 144 222 90 141 063 85
Rest of Africa 11 811 8 19 042 11
Europe 3 536 2 4 472 3
Middle East 456 0 460 0
Other 227 0 1 417 1
160 252 100 166 454 100
Proprietary
Technology
Own IP 78 004 49 78 372 47
3rd Party IP 82 248 51 88 082 53
160 252 100 166 454 100
Audited
Year ended %
30 September contribution
2009
R`000
SECTOR TURNOVER
Enterprise and 209 762 59
broadcast application
solutions
Telecommunications 53 984 15
Services and other 94 818 26
358 564 100
SECTOR OPERATING
PROFIT/(LOSS) BEFORE
INTEREST
Enterprise and 7 744 47
broadcast application
solutions
Telecommunications 651 4
Services and other 7 964 49
16 359 100
Geographic turnover
South Africa 303 354 85
Rest of Africa 45 112 13
Europe 8 568 2
Middle East - 0
Other 1 530 0
358 564 100
Proprietary
Technology
Own IP 151 969 42
3rd Party IP 206 595 58
358 564 100
SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT
Distri- Non-distri-
butable Share Share butable
reserves capital premium reserves Total
R`000 R`000 R`000 R`000 R`000
Balance as at 30 22 302 684 44 599 (34) 67 551
September 2008
Share based payments (48) (48)
Net profit for the 2 671 2 671
period
Other comprehensive (654) (654)
loss
- Foreign currency (654) (654)
translation loss
arising on
consolidation
Balance as at 31 24 973 684 44 599 (736) 69 520
March 2009
Share based payments 95 95
Net profit for the 6 066 6 066
period
Other comprehensive 10 005 10 005
income
- Revaluation of 15 203 15 203
land and buildings
- Deferred tax and (3 779) (3 779)
depreciation arising
on revaluation of
land and buildings
- Foreign currency (1 419) (1 419)
translation loss
arising on
consolidation
Balance as at 30 31 039 684 44 599 9 364 85 686
September 2009
Share based payments - -
Net profit for the 3 839 3 839
period
Other comprehensive (721) (721)
loss
- Depreciation on (173) (173)
revaluation of land
and buildings
- Foreign currency (548) (548)
translation loss
arising on
consolidation
Balance as at 31 34 878 684 44 599 8 643 88 804
March 2010
NOTES TO THE SUMMARISED FINANCIAL STATEMENTS
1. Basis of preparation
The interim consolidated financial statements for the six months ended 31 March
2010 have been prepared in accordance with IAS 34 Interim Financial Reporting.
The interim consolidated financial statements do not include all the information
and disclosures required in the annual financial statements, and should be read
in conjunction with the Group`s annual financial statements as at 30 September
2009.
2. Significant accounting policies
The interim financial statements have been prepared in accordance with IAS 34
Interim Financial Statements and the listing requirements of the JSE Securities
Exchange South Africa. The accounting policies adopted are consistent with those
of the previous year, except for the adoption of IFRS 3 Revised Business
Combinations, IFRS 8 Operating Segments, IAS 1 Presentation of Financial
Statements and IAS 27 Consolidated and Separate Financial Statements.
In addition, the Group has prospectively changed its accounting policy with
regard to borrowing costs. Borrowing costs incurred in respect of qualifying
assets will in future be capitalised to the asset. All other borrowing costs
will still be expensed.
The external auditors have not reviewed the financial results for the half-year
ended 31 March 2010.
3. Segment Information
Revenue and expenses are attributed directly to the segments to which they
relate. Management monitors the operating profit/loss of its business units
separately for the purpose of making decisions about resource allocation and
performance assessment. Segment performance is evaluated based on operating
profit or loss. Transfer prices between operating segments are on an arm`s
length basis in a manner similar to transactions with third parties. The
comparatives have been restated in accordance with the requirements in IFRS 8.
4. Events after the statement of financial position date
With immediate effect the company has withdrawn the cautionary as detailed
below.
COMMENTARY
Introduction
Spescom Limited delivered a strong performance for the six months ended 31 March
2010, despite ongoing pressure on ICT spending among its corporate clients. The
Group is reaping the benefits of its strategy to focus on higher margin
services. All of Spescom`s four operating divisions successfully delivered on
this commitment which enabled it to report continual improvements in gross
profit margins despite pressure on revenue imposed by the extended economic
downturn. During this time, service related turnover has grown to 35% of
turnover from 26% in the comparable period.
Financial review
The Group showed growth in revenue related to services and annuity revenue
contracts, which grew by 27% to R55,4 million (2009: R43,4 million). Turnover
showed a marginal decline to R160,3 million (2009: R166,5 million) as the tight
economy constricted new project opportunities and led to a 15% revenue decline
in both the Enterprise and broadcast application solutions and the
Telecommunications segments.
The increased contribution from higher margin services supported a 6%
improvement in gross profit to R83,9 million (2009: R79,5 million). Spescom
remained focused on stringent cost management, limiting the operating expense
increase to 3% against the backdrop of increased wage costs to retain key skills
as well as retrenchment costs of R1,8 million.
Operating profit before interest grew 55% to R5,2 million (2009: R3,3 million)
underpinned by the services segment which reported a 114% increase in operating
profit to R2,6 million (2009: R1,2 million). The Telecommunications segment
achieved an operating margin before interest of 0,7% compared to a negative
margin of (4,8%) in the comparable period. The Enterprise and broadcast
application solutions segment defended its operating margin of 2,7% despite the
tight business environment.
Spescom reported a 44% increase in attributable profit to R3,8 million (2009:
R2,7 million), with a commensurate increase in earnings per share to 5,3 cents
(2009: 3,7 cents). Reported headline earnings per share of 5,5 cents is 49%
higher than the comparable period (2009: 3,7 cents).
The Group maintained its good cash flows reflecting the strong operating
performance and ongoing focus on costs. Cash generated by operations amounted to
R13,3 million (2009: R14,0 million).
Net asset value per share increased by 28% to 112,7 cents per share (2009: 88,3
cents per share).
The gearing position of the Group showed a marginal improvement to 25%
(September 2009: 26%).
Operational review
Spescom remains focused on delivering business communications by providing best
of breed solutions together with the associated integration and after-sales
support services.
Spescom DataVoice`s sales volumes continued to be impacted by slower deal flow,
both locally and internationally, due to the economic downturn. However, its
gross margin improved as a result of initiatives to streamline costs. A steady
increase in its annuity revenue base from the renewal of maintenance contracts
also paid off. Spescom DataVoice continues to build its partnership with a major
international equipment manufacturer, Motorola.
Although Spescom DataFusion is seeing evidence of a slow recovery, the market is
characterised by smaller projects. The division delivered a 19% increase in
annuity revenue, supported by its growing installed base, which facilitated an
improved gross margin. Its opportunity pipeline indicates that market activity
is set to continue improving.
Spescom Media IT showed a small decline in revenue, due largely to delays in the
delivery of equipment to fulfil customer orders. It concluded long-term
maintenance contracts following the supply of turnkey integrated broadcast
solutions to the national broadcasters in Mauritius and Namibia which will
contribute to its results going forward. The division also has a solid pipeline
of opportunities and is pursuing additional growth prospects beyond South
Africa.
Spescom Telecommunications benefited from its specialised maintenance contract
with Neotel which commenced in April 2009. Infrastructure spending remained
under pressure as customers continued to minimise capital expenditure. Despite
the tight operating environment, the division contributed positively to the
Group`s operating profit and remains focused on expanding its service-related
activities to support performance in the second half of the financial year.
A new operating division, NewTelcoSA was established during the period to
participate in the liberalisation of the domestic telecommunications sector. The
facility is a focused carrier-neutral telecommunications co-location services
provider in South Africa. It offers a carrier grade point-of-presence (PoP) in
South Africa to switch local and international customer traffic and provides a
transparent interconnection between carriers. The business model holds the
potential to further enhance Spescom`s growing annuity service revenue base.
Board of Directors
Mr Chris Lister-James was appointed to the board of directors of Spescom Limited
as non-executive director with effect from 14 April 2010. Mr Lister-James, a
qualified CA (SA), is an Executive Director and co-founder of Vantage Capital
Group (Pty) Limited which owns 25,4% of Spescom Limited.
Conclusion
Spescom`s focus on increasing its service-related revenue streams held the Group
in good stead during the recent economic turmoil as a result of the greater
diversification and higher margin earnings. The Group has established a strong
base of annuity revenues and is positioned to benefit from the economic recovery
as evidenced by the increase in the number of projects under consideration by
customers. Enterprise investment decisions are driven by the requirement for new
business practices to enhance efficiencies. Growth opportunities include growth
in Africa as well as the public sector domestically.
While there are promising signs that the opportunity pipeline is gradually
recovering, business activity could be temporarily affected during the Soccer
World Cup. However, the Group remains confident that margins are sustainable at
current levels, underpinned by the groupwide initiative to further increase
service related customer engagements.
Withdrawal of cautionary announcement
Shareholders are referred to the cautionary announcement date 30 March 2010 and
advised that caution is no longer required when dealing in its securities.
Having evaluated opportunities to accelerate growth, increase critical mass and
unlock value, Spescom`s board and management team concluded that the terms of
the specific opportunities which were under consideration were not optimally
aligned with its objectives. It will continue to pursue initiatives to deliver
on its growth strategy and create value for its shareholders.
Having delivered a further improvement in profitability in spite of
unprecedented tight trading conditions, the Group is well positioned. With its
strong track record of delivery, Spescom is committed to further diversifying
its service related revenue streams to support its long-term sustainability and
will continue to leverage its competencies to deliver growth.
By order of the board
JI Palmer
Chief Executive Officer
20 May 2010
Directors: DS Lushaba* (Chairperson), JI Palmer, PH Fick, C Lister-James*TS
Makore, C Nkosi*, L Ogilvy*, S Rahiman*, N Qangule*
* Non-executive
Registered office: Spescom Park Cnr Alexandra Avenue and Second Road, Midrand,
1685
Tel: +27 11 266 1500
Secretary: A van der Merwe
Registrar: Computershare Investor Services (Pty) Limited
70 Marshall Street, Johannesburg, 20 01
Tel: +27 11 370 5000
Sponsor: Investec Bank Limited
www.spescom.com
Date: 20/05/2010 07:05:02 Produced by the JSE SENS Department.
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