| Tue 28 Sep 2010, 7:05 | | GIJ - Gijima Group Limited - Audited results for the year ended 30 June 2010 and |
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GIJ
GIJ
GIJ - Gijima Group Limited - Audited results for the year ended 30 June 2010 and
proposed cash dividend declaration
GIJIMA GROUP LIMITED
(previously GIJIMA AST GROUP LIMITED)
Registration number 1998/021790/06
Share code: GIJ ISIN: ZAE000064606
("Gijima" or "the Group" or "the Company")
AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2010 AND PROPOSED CASH DIVIDEND
DECLARATION
Summarised consolidated income statement
for the year ended 30 June 2010
Audited Audited
30 June 30 June
2010 2009
Notes R`000 R`000
Revenue 2 943 417 3 014 340
Other operating income 3 913 1 241
Income 2 947 330 3 015 581
Earnings before interest, tax, 287 083 283 253
depreciation, amortisation charges,
and before exchange rate losses on
translation
Exchange rate losses on translation (1 409) (50 653)
Earnings before interest, tax, 285 674 232 600
depreciation and amortisation charges
(EBITDA)
Depreciation and amortisation charges (44 686) (36 151)
Operating profit 4 240 988 196 449
Financial income 22 609 14 005
Financial expenses (34 375) (35 513)
Net financial expense (11 766) (21 508)
Profit before tax 229 222 174 941
Income tax expense (75 059) (64 163)
Profit for the year 154 163 110 778
Total profit attributable to
Owners of the parent 158 610 110 778
Non-controlling interest (4 447) -
154 163 110 778
Basic earnings per ordinary share 16,37 11,39
(cents)
Diluted earnings per ordinary share 16,31 11,39
(cents)
Headline earnings per ordinary share 16,44 11,42
(cents)
Diluted headline earnings per 16,37 11,42
ordinary share (cents)
Weighted average number of shares 968 666 972 782
(000`s)
Diluted number of shares (000`s) 972 455 972 782
Number of shares in issue (000`s) 961 565 974 742
Calculation of headline earnings
Profit attributable to owners of the 158 610 110 778
parent
Loss on sale of businesses and 827 359
property, plant and equipment
Tax effect (232) -
Headline earnings 159 205 111 137
Summarised consolidated statement of comprehensive income
for the year ended 30 June 2010
Audited Audited
30 June 30 June
2010 2009
R`000 R`000
Profit for the year 154 163 110 778
Other comprehensive income
Currency translation differences for foreign 9 812 34 129
operations
Currency translation on the net investments (11 169)
for foreign operations
Revaluation of property, plant and equipment - 2 181
Income tax on other comprehensive income (55) 299
Total comprehensive income for the year 152 751 147 387
Total comprehensive income attributable to
Owners of the parent 157 198 147 387
Non-controlling interest (4 447) -
152 751 147 387
Notes to the summarised consolidated financial statements
1 Reporting entity
These provisional GIJIMA GROUP LIMITED (`the Group`) financial results for the
year ended 30 June 2010 constitute a summary, prepared in accordance with the
JSE Listings Requirements; the South African Companies Act (Act 61 of 1973) as
amended; and the recognition and measurement requirements of International
Financial Reporting Standards and the presentation and disclosure requirements
of International Accounting Standards 34 and the AC500 interpretation as issued
by the Accounting Profession Council of SAICA, of the Group`s audited financial
statements.
These summarised consolidated financial statements do not include all of the
information required for full annual financial statements, and should be read in
conjunction with the consolidated financial statements of the Group as at and
for the year ended 30 June 2010.
This provisional announcement has been audited by the company`s auditors, KPMG
Inc., who have expressed an unqualified audit opinion with the following
emphasis of matter paragraph:
Without qualifying our opinion we draw attention to the paragraphs set out in
the commentary headed "Client dispute". Details are given of the dispute and
indicate that there is uncertainty with regard to the resolution of the dispute
and as the ultimate outcome of the dispute cannot presently be determined, no
provision for any liability for any result has been made in these financial
statements.
The auditor`s report is available for inspection at the company`s registered
office.
These summarised consolidated annual financial statements were approved by the
Board of Directors on 23 September 2010.
2 Significant accounting policies
Except as described below, the accounting policies applied by the Group in these
summarised consolidated annual 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 2009.
Determination and presentation of operating segments
IFRS 8 Operating segments is adopted as of 1 July 2009. The Group currently and
previously presented operating segments based on information that is internally
provided to the CEO, who is the Group`s chief operating decision maker. There is
therefore no change in comparative figures.
Segment results reported to the CEO include items directly attributable to a
segment as well as those items that can be allocated on a reasonable basis.
Unallocated items comprise mainly other corporate expenses and exchange rate
gains and losses on translation.
Business combinations
The Group adopted the new revised IFRS 3 Business Combinations whereby
combinations occurring on or after 1 July 2009 are accounted for by applying the
acquisition method. The change in accounting policy is applied prospectively and
had no impact on earnings per share.
IAS 27 amendment - Consolidated and Separate Financial Statements
The amendments to IAS 27 require that losses (including negative "other
comprehensive income" as detailed in the revised IAS 1) have to be allocated to
the non-controlling interest even if doing so causes the non-controlling
interest to be in a deficit position. The standard is effective for periods
commencing on or after 1 July 2009 and is applied prospectively.
Net investment in foreign operations
The current accounting policy was expanded to incorporate the effects of IAS
21.15 (The Effects of Changes in Foreign Exchange Rates), which is addressed in
the commentary.
Presentation of financial statements
The Group applied the revised IAS 1 Presentation of Financial Statements, which
became effective for reporting periods starting on or after 1 January 2009.
Comparative information has been re-presented so that it is also in conformity
with the revised standard. There is no impact on earnings per share.
3 Dividend paid
A cash dividend from income reserves of 5 cents per share was paid to
shareholders on 30 November 2009 in respect of the 2009 financial year. The last
date to trade to qualify for this dividend was 20 November 2009.
An interim cash dividend from income reserves of 2,5 cents per share was paid to
shareholders on 23 March 2010. The last date to trade to qualify for this
dividend was 12 March 2010.
Audited Audited
30 June 30 June
2010 2009
R`000 R`000
4 Operating profit
The following material items have been
included in the calculation of operating
profit
Exchange rate losses on translation (1 409) (50 653)
Loss on sale of businesses and property, (595) (359)
plant and equipment
(2 004) (51 012)
5 Contingent liabilities
At 30 June 2010 the Group had contingent liabilities in respect of registered
performance bonds, bank lease and other guarantees to the value of R3,8 million
(June 2009: R10 million).
Summarised consolidated segmental analysis
for the year ended 30 June 2010
Audited Audited
30 June 30 June
2010 2009
R`000 R`000
Revenue
Professional Services 1 458 219 1 550 786
Managed Services 1 520 030 1 484 229
2 978 249 3 035 015
Internal revenue adjustment (34 832) (20 675)
Consolidated revenue 2 943 417 3 014 340
Segment results
Professional Services 158 092 160 978
Managed Services 106 509 111 495
Unallocated expenses (35 379) (97 532)
Other corporate expenses (22 204) (25 371)
Exchange rate losses on translation (1 409) (50 653)
Net financial expense (11 766) (21 508)
Consolidated profit before tax 229 222 174 941
Summarised consolidated statement of financial position
as at 30 June 2010
Audited Audited
30 June 30 June
2010 2009
R`000 R`000
ASSETS
Non-current assets 300 776 306 045
Property, plant and equipment 91 334 91 976
Intangible assets 138 285 133 664
Deferred tax assets 71 157 80 405
Current assets 1 313 751 1 216 808
Inventories 42 554 36 581
Trade and other receivables 927 944 691 823
Current tax assets 184 2 838
Cash and cash equivalents 343 069 485 566
Total assets 1 614 527 1 522 853
EQUITY AND LIABILITIES
Equity attributable to owners of the 501 620 427 687
parent
Non-controlling interest (4 447) -
Non-current liabilities 416 222 311 778
Interest-bearing liabilities 300 706 257 709
Operating lease liability 27 821 25 353
Amounts due to vendors 6 065 -
Deferred tax liabilities 81 630 28 716
Current liabilities 701 132 783 388
Trade and other payables 687 095 646 309
Short-term borrowings - 100 000
Provisions 6 119 14 723
Bank overdrafts 3 152 1 175
Amounts due to vendors 2 039 -
Current tax liabilities 2 727 21 181
Total equity and liabilities 1 614 527 1 522 853
Summarised consolidated statement of cash flows
for the year ended 30 June 2010
Audited Audited
30 June 30 June
2010 2009
R`000 R`000
Cash flows from operating activities
Cash generated from operations before 309 329 234 795
working capital changes
Working capital changes (225 105) 127 817
Net financial expense (15 585) (21 849)
Interest received 22 161 13 874
Interest paid (37 746) (35 723)
Dividend paid (73 105) (34 351)
Tax paid (28 697) (11 610)
Net cash (used in)/generated from (33 163) 294 802
operating activities
Cash flows from investing activities
Purchase of software (7 114) (21 227)
Purchase of property, plant and equipment (29 382) (57 582)
Business acquired (4 900) -
Net cash used in investing activities (41 396) (78 809)
Cash flows from financing activities
Repayment of short-term borrowings (201 003) (2 758)
Repayment of interest-bearing borrowings (256 000) -
Own shares acquired (12 912) -
Share issue expenses - (26)
Proceeds from short-term borrowings 100 000 100 000
Proceeds from interest-bearing borrowings 300 000 -
Net cash (used in)/generated from (69 915) 97 216
financing activities
Net (decrease)/increase in cash and cash (144 474) 313 209
equivalents
Cash and cash equivalents at the beginning 484 391 171 182
of the year
Cash and cash equivalents at the end of 339 917 484 391
the year
Summarised consolidated statement of changes in equity
for the year ended 30 June 2010
Non-
Share Share Distributable distributable
capital premium reserves reserves
Group R`000 R`000 R`000 R`000
Balance at 1 July 964 646 525 (233 309) (94 647)
2008
Profit for the year 110 778
Other comprehensive
income
Currency 34 559
translation
differences
Revaluation of 2 050
building
Total comprehensive - - 110 778 36 609
income for the year
Transactions with
owners, recorded
directly in equity
Share-based payment 556
transactions
Dividend paid (34 351)
Share issue 17 13 515 (13 532)
Share issue (26) -
expenses
Own shares acquired (7) (5 405)
Total transactions 10 8 084 (47 327) -
with owners
Balance at 30 June 974 654 609 (169 858) (58 038)
2009
Profit for the year 158 610
Other comprehensive
income
Currency 9 757
translation
differences
Currency (11 169)
translation on net
investments
Total comprehensive - - 158 610 (1 412)
income for the year
Transactions with
owners recorded
directly in equity
Share-based payment 2 752
transactions
Dividend paid (73 105)
Own shares acquired (13) (12
899)
Total transactions (13) (12 (70 353) -
with owners 899)
Balance at 30 June 961 641 710 (81 601) (59 450)
2010
Non-
controlling Total
Total interest equity
Group R`000 R`000 R`000
Balance at 1 July 319 533 - 319 533
2008
Profit for the year 110 778 110 778
Other comprehensive
income
Currency 34 559 34 559
translation
differences
Revaluation of 2 050 2 050
building
Total comprehensive 147 387 - 147 387
income for the year
Transactions with
owners, recorded
directly in equity
Share-based payment 556 556
transactions
Dividend paid (34 351) - (34 351)
Share issue - -
Share issue (26) (26)
expenses
Own shares acquired (5 412) (5 412)
Total transactions (39 233) - (39 233)
with owners
Balance at 30 June 427 687 - 427 687
2009
Profit for the year 158 610 (4 447) 154 163
Other comprehensive
income
Currency 9 757 - 9 757
translation
differences
Currency (11 169) (11 169)
translation on net
investments
Total comprehensive 157 198 (4 447) 152 751
income for the year
Transactions with
owners recorded
directly in equity
Share-based payment 2 752 2 752
transactions
Dividend paid (73 105) (73 105)
Own shares acquired (12 912) (12 912)
Total transactions (83 265) - (83 265)
with owners
Balance at 30 June 501 620 (4 447) 497 173
2010
OVERVIEW
Gijima is a leading information and communication technology (ICT) services
group that offers end to end infrastructure management and professional
services. The company has over 80 points of presence in Southern Africa as well
as offices in Australia, Canada, Chile and Turkey.
The 2010 financial year has been a challenging one for Gijima and the ICT sector
in general. After a reasonably satisfactory first half, Gijima`s second half was
impacted by muted growth in ICT spending in both the public and private sectors.
The group was negatively affected by the unresolved dispute with the Department
of Home Affairs (DHA) over the Who Am I Online (WAIO) contract, which the
Department contends is invalid. Gijima and the Department are in discussions to
resolve the issue, which is described in more detail below.
There has been little growth in the ICT industry over the previous twelve
months, with public sector spending still depressed after the global financial
crisis and private sector growth recovery slower than expected. Nevertheless,
Gijima ended the year to June 2010 with increased headline earnings from
revenues slightly lower than last year. This is a satisfactory performance in
difficult circumstances. It is testimony to the resilience of a business model
focussed on clients, contractual income and cash management. Gijima started
delivery on several new projects late in the financial year, which impact will
be seen in future financial periods.
Although the increase in profits and headline earnings was more modest than had
been anticipated at the half-year stage, it continues Gijima`s sustained and
sustainable growth across successive business cycles. Both of our operating
divisions increased their EBITDA margins, with an overall increase of 2% for the
company to 9,7%. We continue to focus the business increasingly on services
contracts which provide multi-year income. Services now constitute 84% of our
business and a predominant and growing proportion of our earnings are coming
from designing and implementing solutions that meet client needs in South Africa
and those of mining industry clients in five continents.
Gijima remains a well balanced business, with 48% of our revenue coming from the
public sector and 52% from the private sector.
The second half of the year was marked by the rebranding of the group to Gijima
from the previous GijimaAst. The AST name has served the company well over the
past five years, demonstrating continuity and enhancement. The change is
effective from the start of the current financial year. Gijima`s goal is to be a
global IT player anchored in Africa.
OPERATIONAL REVIEW
The 2,4% decline in revenue for the year reflects not only muted market
conditions, but also the impactof the WAIO contract dispute, as described in
more detail below. It also reflects Gijima`s continued strategic choice to
concentrate on higher-margin operations such as services. The sale of products,
including hardware, is not a core part of the Gijima business, but supports our
services divisions.
As reported with the first half results, Gijima`s profits are no longer impacted
by the exchange rate gains or losses on translation of inter-group accounts
denominated in foreign currencies. These translation differences are, from 1
July 2009, recorded within the company`s statement of comprehensive income, in
line with International Accounting Standard 21: The Effects of Changes in
Foreign Exchange Rates.
Gijima`s continued focus on higher margin business contributed to the 8%
increase in headline earnings per share if the foreign exchange translation
differences are eliminated in the comparative reporting period. Gijima has
continued to increase its public sector revenues because we focus on the
development and delivery of large complex projects. This is indicated by new
contracts in this financial year from the Department of Rural Affairs and Land
Reform - a multi-year project to develop an electronic deeds registry - and the
South African National Roads Agency (SANRAL) to bring open tolling to Gauteng`s
freeways. These contracts were awarded in the first half of the year, with
implementation and revenues commencing late in the second half. Significant new
private sector deals and contract renewals include ArcelorMittal (infrastructure
services), Total South Africa (hardware and software support), Absa (Microsoft
projects and services), Airports Company of South Africa (networks), Exxaro
Resources (networks and SAP support) and Murray & Roberts (industrial skills
development and training).
The Managed Services Division reported slightly reduced profits on marginally
increased revenues. Despite a strong financial performance by the distributed
computing environment, the general downturn negatively impacted the volumes in
particularly the Networking products sales. Gijima continues to invest in
intelligent software tools and increase its remote support services (as opposed
to physical support) which dramatically enhance the client user experience
whilst increasing operational efficiency. Clients have reacted positively to the
speed and convenience of our increasing use of remote services.
After two years of negative growth in our unified communications unit, the new
management has brought stability to the environment and we`re seeing some early
signs of improvement.
Gijima`s hosted data centre and security offerings continue to gain greater
market traction and with the advent of Cloud Computing we see greater market
opportunity for the division.
The Professional Services Division reported flat earnings despite a drop of R93
million in revenue. The division`s largest revenues are derived from systems
integration. It is in this area that the WAIO contract dispute negatively
impacted both revenue and operating profit. Other systems integration projects
are proceeding well with several new systems that commenced recently in Public
Sector, Financial Services, Mining and Manufacturing clients.
Despite several new contract wins, our ERP integration business returned a
disappointing performance due to simultaneous delays on a number of its large
projects. The SAP Support Hub remains one of the largest of its kind in Africa
serving several multinational clients.
The group`s human capital management offerings such as IT skills development and
training, occupational hygiene, contractor and permanent placements showed a
respectable return in what has been a very tough market.
Our mining technical solutions unit managed a healthy rebound after a very
difficult previous financial period when the global financial crisis caused a
severe pull back in capital expenditure by our clients. We are seeing renewed
interest in some of our world leading mining technologies.
The Board has taken a strategic decision to retain longer-term secured funds in
order to meet its projected funding requirements for continued growth over the
next few years. All existing debentures maturing in June 2010 and July 2011 were
redeemed and new debentures of R300 million with two-year and five-year maturity
dates were issued in June 2010. Through this issuance the group has been able to
secure its anticipated funding requirements for future years at competitive
rates on the strength of its trade receivables. The debentures have been rated
AA. Due to the reduced debt of the business, coupled with significantly higher
cash balances retained during the year, the net financial expense reduced by 45%
year on year.
Shares in issue reduced by some 13 million as part of the share buyback
programme.
The group`s current ratio at financial year end improved to 1,87 times compared
to 1,55 times at 30 June 2009.
Cash generated from operations before working capital changes improved by 32% to
R309 million. Working capital of R225 million was absorbed during the period. A
large percentage of this relates to the lack of payment from DHA pending
resolution of the WAIO contract dispute.
PROPOSED DIVIDEND DECLARATION
In view of the moderate increase in normalised earnings and our relatively sound
liquidity position, the Board has declared a final cash dividend of 2,5 cents
per share, which, coupled with the interim cash dividend of 2,5 cents paid on 23
March 2010, is in line with last year`s dividend of 5,0 cents per share. The
dividend is payable to shareholders recorded in the books of the company at the
close of business on Friday, 26 November 2010. The proposed dividend is to be
confirmed at the annual general meeting to be held on Friday, 12 November 2010.
An announcement confirming the payment of the proposed dividends will be made on
SENS on Friday, 12 November 2010 and in the press on Saturday, 13 November 2010.
The salient dates are as follows:
Last date to trade cum dividend Friday, 19 November 2010
Securities start trading ex dividend Monday, 22 November 2010
Record date Friday, 26 November 2010
Payment date Monday, 29 November 2010
The dividend is declared in the currency of the Republic of South Africa.
Share certificates may not be dematerialised or rematerialised between Monday,
22 November 2010 and Friday, 26 November 2010, both dates inclusive.
CLIENT DISPUTE
Gijima entered into the WAIO contract with the DHA in July 2008. This large and
multi-year project seeks to modernise the business of the DHA in line with
international best practice. It includes the elimination of manual and paper-
based systems for the issue of visas, passports and identity documents and the
implementation of border control management systems at ports of entry in South
Africa.
Gijima is one of the largest ICT companies in South Africa with extensive
experience in implementing complex projects in the public and private sectors.
Consortium partners on the project include various reputable multinational
companies.
On 13 April 2010 Gijima received a letter from the Director-General of the DHA
contending that it became apparent to the DHA that on various grounds, the
contract is invalid and unenforceable. The DHA disputes that Gijima has or had
any valid and enforceable agreement with the DHA, and in the premise and in any
event, denies that Gijima is entitled to any payment from the DHA.
There has previously been no suggestion from DHA that the contract is not valid
and unenforceable. Gijima has been performing in terms of the contract for two
years and the DHA`s claim that the contract is invalid and unenforceable was
therefore completely unexpected.
Gijima contends that the contract is valid and enforceable and has obtained
legal opinions to support its contention. Gijima is satisfied that it has
fulfilled its obligations and continues to perform in terms of the contract. An
independent review of the contract by a leading international information and
technology research and advisory company has concluded that the work delivered
to date is in compliance with industry best practice.
Various meetings and discussions have been taking place between Gijima and
representatives of the DHA with a view of resolving the present impasse between
the parties. All these discussions have been held without prejudice and no
formal written response from the DHA has been received to date supporting their
view as to why the agreement is deemed to be invalid and unenforceable. Gijima
remains committed to pursuing a commercial resolution in order to avoid
litigation to resolve this dispute.
Since inception of the project to date Gijima has recognised revenue of R1 183
million on this contract, representing 14% of Gijima`s total revenue of R8 472
million over the same period, of which some R476 million was recognised in the
year under review.
The statement of financial position at 30 June 2010 contains trade and other
receivables of R237 million relating to the WAIO contract, which represents 25%
of Gijima`s total trade and other receivables at that date. This is a
significant contract.
There is uncertainty with regard to the resolution of the dispute and as the
ultimate outcome of the matter cannot presently be determined, no write down has
been made for net receivables and revenue recognised not invoiced yet that may
be unenforceable, nor has a provision for any liability that may result, been
made in these financial statements.
Gijima remains confident that the impasse will be resolved to the benefit of
both the DHA and the company. Accordingly, the financial statements are prepared
on the going concern basis.
Our auditors have included an "emphasis of matter" in their report to the
shareholders, not qualifying their audit but drawing specific attention to this
uncertainty.
PROSPECTS
Market conditions are expected to remain challenging during 2011, with both
private and public sector ICT spend likely to remain constrained. We expect
continued consolidation in the local ICT industry, and have noted the increased
interest in South African companies from abroad.
After being out of favour for many years, outsourcing of ICT services is once
again gaining support, particularly in the financial services sector. Gijima is
well positioned to take advantage of this trend.
The international scope of our service delivery continues to grow with the
accelerating globalisation of our client base. New technology and increasing
availability of broadband connections enable us to offer services to clients
wherever they are operating in the world.
Gijima has embarked on a programme of establishing the Next Generation Services.
This programme is designed to achieve a number of client-oriented benefits and
provide cost-effective services.
One aspect of the programme is developing client services using what is known as
cloud computing - the public cloud, where data and applications are housed on
servers in international locations, and the more secure private cloud, making
efficient use of servers at Gijima sites.
The use of these services is increasing in South Africa, although the country
remains behind the international adoption rate. The international trend is that
the public sector in particular is making increasing use of cloud computing.
Gijima has formed international alliances with other world leading ICT companies
to provide these services to clients in both the public and private sectors,
here and in other African countries.
Gijima is in the process of reviewing its business model to increase the focus
on clients, which will be coupled with an increased focus on ensuring industry
vertical dominance.
From a people perspective, Gijima is striving to become the employer of choice
within the ICT sector, and in this light, an initiative is underway to establish
and engender a high performance culture.
GIJIMA BOARD CHANGES
The following changes in the Board have taken place since the last annual
report:
- Ms LBR Mthembu resigned on 26 February 2010.
- Dr NJ Dlamini resigned on 31 August 2010.
- Mr AH Trikamjee was appointed on 13 August 2010.
RW Gumede PJ Bogoshi CJH Ferreira
Non-executive Chief Executive Chief Financial
Chairman Officer Officer
28 September 2010
Directors:
RW Gumede (Non-executive Chairman), PJ Bogoshi (Chief Executive Officer)CJH
Ferreira (Chief Financial Officer), M Macdonald*. JE Miller*AFB Mthembu*, JCL
van der Walt*, AH Trikamjee*
*Non-executive
Company Secretary:
Ithemba Governance and Statutory Solutions (Pty) Limited +Monument Office Park,
Block 5, Suite 102, 79 Steenbok Avenue, Monument Park
+ Appointed 1 April 2010
Sponsor:
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
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)
16th floor, 11 Diagonal Street, Johannesburg, 2001
(PO Box 4844, Johannesburg, 2000)
Date: 28/09/2010 07:05:02 Produced by the JSE SENS Department.
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