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SVB
SVB
SVB - Silverbridge Holdings Limited - Condensed unaudited group interim
financial statements for the six month period ended 31 August 2010
SILVERBRIDGE HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration NUMBER 1995/006315/06)
Share code: SVB ISIN: ZAE000086229
("SilverBridge" or "the Group")
CONDENSED UNAUDITED GROUP INTERIM FINANCIAL STATEMENTS
for the six month period ended 31 August 2010
GROUP PROFILE
SilverBridge is Africa`s leading provider of administration software and IT
consultation in the financial services industry. Our expertise covers many
financial services` verticals with a specific focus on banking and life
assurance. Constant changes in the market require both an agile and innovative
approach from financial services providers. SilverBridge has a track record of
delivering solutions which enable our clients to be more successful in this
challenging market. The future of financial services holds many challenges for
providers; the speed at which technology is changing and influencing the
behaviour of new generations will require a new approach to financial services.
SilverBridge is committed to being part of that new future. The Group operates
through the following three subsidiaries:
SDT Financial Software Solutions (Proprietary) Limited (SDT) - Life insurance
administration
SDT was established in 1995 and has developed and streamlined its own software
which it sells on a rental model. SDT offers life assurance companies quick time
to market, reduced contract administration costs and enhanced customer service.
SDT`s flagship software, Exergy, with its supporting services, is packaged to
meet the needs of the different market segments in which it operates.
Ones `n Zeros Professional Services (SA) (Proprietary) Limited (Ones & Zeros) -
Consulting
Founded In 1997, Ones & Zeros is an established IT management consulting
business. Its approach is to bring people and technology together. Services
include strategic systems implementation and consulting, which align business
processes with an organisation`s overall IT strategy. It has well established
relationships within the banking sector that add to the credibility of the
Group.
Acczone Systems (Proprietary) Limited (Acczone) - Loans administration
Acczone was established in 1998 and has a core competency in the delivery of
business systems solutions in the loan administration sector, which encompasses
interest-bearing credit and debt administration.
FINANCIAL REVIEW
The financial performance of the Group for the six months to 31 August 2010 was
disappointing primarily owing to delivery on projects being delayed or
misaligned with client expectations. More specifically:
It was a challenging period at SDT delivering on simultaneous complex projects.
Some project milestones were not met leading to delayed revenue recognition
and/or cost recoveries.
The SDT delivery environment has been critically reviewed and corrective action
has been taken. Some skills have been realigned and a higher level of skills has
been brought in. The exercise required a retrenchment process, which has been
completed.
The Acczone acquisition has increased the overall cost base, however it has not
delivered the expected increase in revenue.
Acczone has also been critically reviewed and corrective action has been taken.
This included a retrenchment process to reduce the cost base.
Despite the temporary delays in revenue recognition, we have maintained our
revenue at the same level as the comparative period. The corrective actions
taken have reduced our cost base to be in line with the cost levels of the
comparative period. We are confident that the market presents sufficient
opportunities and that we have taken the right steps to rectify the challenges
outlined above.
OPERATIONAL HIGHLIGHTS
We have made good progress with implementing the Exergy system for new clients
in SDT`s market. We are applying an improved implementation methodology in the
ABSA implementation, a large project that was won last financial year. The
current consulting market offers smaller, highly competitive opportunities.
Although Ones & Zeros experienced a challenging market, it has successfully
migrated from a single contract consulting firm to one that is managing multiple
engagements.
GROUP OUTLOOK
Our strategy at SilverBridge remains focused on building our annuity revenue
base. Annuity income consists of software rental and contracted support revenue.
These are driven and preceded by consulting, implementation and customisation
engagements.
The financial crisis has led to challenging current economic conditions as was
expected. Within consulting, we have seen a shift from high-value long-term
engagements towards smaller, price sensitive opportunities. Clients` decision
cycles have lengthened with more assurance work required before final decisions
are made, thus increasing pre-sales costs.
However, the environment has also led to new opportunities as financial service
institutions search for ways to reduce costs and improve services to their
customers. SilverBridge`s offerings are well positioned to meet these needs.
Despite the challenging and competitive environment, the group sees numerous
positive opportunities.
The outlook remains positive. Our annuity revenue creates a base for the Group
to grow and we have taken the view that we need to protect our revenue streams.
We have therefore supported our clients to resolve problems in their
environments. The corrective actions we have taken this period have aligned our
group better to current market requirements and should improve delivery
capability and financial performance.
Unaudited Condensed Consolidated Statement of Comprehensive Income
For the six month period ended 31 August 2010
Unaudited Unaudited Audited
six months six months 12 months
ended ended ended
31 August 31 August Percentage 28 February
2010 2009 Change 2010
R`000 R`000 % R`000
Revenue 52 162 51 040 2 106 508
Other income 55 513 1 232
Other expenses (50 664) (43 134) (86 052)
Finance income 435 702 1 001
Finance expense (1) (169) (517)
Profit before 1 987 8 952 22 172
taxation
Taxation (9) (2 761) (6 012)
Profit and total 1 978 6 191 (68) 16 160
comprehensive income
for the period
Net profit and total
comprehensive income
attributable to:
Equity holders of the 1 136 5 151 13 540
parent
Non-controlling 842 1 040 2 620
interest
1 978 6 191 (68) 16 160
Number of shares in 34 675 34 232 34 675
issue (`000)
Weighted average 34 675 33 773 34 034
number of shares in
issue (`000)
Basic earnings per 3.3 15.3 (78) 39.8
share (cents)
Headline earnings per 3.3 15.0 (78) 39.7
share (cents)
Diluted earnings per 3.2 15.0 (79) 32.4
share (cents)
Diluted headline 3.2 14.8 (78) 32.3
earnings per share
(cents)
Reconciliation of
headline and diluted
headline earnings
Basic and diluted 1 136 5 151 13 540
earnings
Adjusted for gain on - (79) (15)
disposal of equipment
Headline and diluted 1 136 5 072 13 525
headline earnings
Unaudited Condensed Consolidated Statement of Financial Position
as at 31 August 2010
Unaudited Unaudited Audited
as at as at as at
31 August 31 August 28 February
2010 2009 2010
R`000 R`000 R`000
ASSETS
Non-Current Assets
Equipment 3 068 2 325 2 229
Intangible assets 29 766 20 459 38 095
Investments - 38 -
Investment in associate 110 101 110
Deferred tax assets 4 432 4 465 2 148
Total Non-Current Assets 37 376 27 388 42 582
Current Assets
Income tax receivable 5 804 6 148 5 700
Revenue recognised not yet 8 799 6 266 6 657
invoiced
Trade and other receivables 16 231 16 096 15 364
Cash and cash equivalents 11 353 14 219 14 432
Total Current Assets 42 187 42 729 42 153
Total Assets 79 563 70 117 84 735
EQUITY AND LIABILITIES
Capital and Reserves
Issued capital 348 342 348
Share premium 11 869 9 502 11 871
Acquisition shares - 1 362 -
Treasury shares (197) (197) (197)
Share based payment reserve 279 - 91
Retained earnings 41 249 33 396 41 798
Total equity attributable 53 548 44 405 53 911
to equity holders of the
parent
Non-controlling interest 4 724 2 302 3 881
Total Equity 58 272 46 707 57 792
Current Liabilities
Deferred revenue 3 537 2 778 1 314
Trade and other payables 17 754 20 632 25 629
and provisions
Total Current Liabilities 21 291 23 410 26 943
Total Equity and 79 563 70 117 84 735
Liabilities
Net asset value per share 167.5 133.5 166.2
(cents)
Net tangible asset per 82.0 76.7 56.6
value per share (cents)
Unaudited Condensed Consolidated Statement of Changes in Equity
for the six month period ended 31 August 2010
Unaudited Unaudited Audited
six months six months 12 months
ended ended ended
31 August 31 August 28 February
2010 2009 2010
R`000 R`000 R`000
Opening balance 57 792 43 244 43 244
Profit for the period 1 136 5 151 13 540
attributable to equity holders
of the parent
Non-controlling interest 842 1 040 2 620
Total comprehensive income for 1 978 6 191 16 160
the period
Allotment of shares - (458) 551
Share Capital - 6 12
Share Premium - 898 3 263
Acquisition shares - (1 362) (2 724)
Equity settled share based 214 - 91
payment
Minority interest in dividend - (2 270) (2 270)
payment by subsidiary
Dividend paid by holding (1 712)
company
Capital distribution amount - - 16
not exercised
Closing Balance 58 272 46 707 57 792
Unaudited Condensed Consolidated Statement Of Cash Flows
For the six month period ended 31 August 2010
Unaudited Unaudited Audited
six months six months 12 months
ended ended ended
31 August 31 August 28 February
2010 2009 2010
R`000 R`000 R`000
Cash generated from 1 334 7 353 18 777
operations
Interest received 231 702 939
Interest paid (1) - (10)
Minority interest in - (2 270) (2 270)
dividends paid by
subsidiary
Taxation paid (903) (4 727) (6 201)
STC paid - (463) (463)
Net cash (outflow)/inflow 661 595 10 772
from operating activities
Cash flows from investing
activities
Plant and equipment (1 440) (1 076) (1 734)
acquired to expand
operations
Proceeds from sale of 12 104
equipment
Acquisition of Ones & - (3 535)
Zeros
Acquisition of Acczone - (3 241)
Listing fees set off (8)
against share premium on
the issue of shares
Increase in investment (38) -
Capitalisation of (2 300) (411) ( 2 759)
development costs
Net cash inflow/(outflow) (3 740) (1 513) (11 173)
from investing activities
Cash flows from financing
activities
Capital distribution from - (961) -
share premium
Reduction in liability of - - (1 265)
previous period`s capital
distribution from share
premium
Net cash outflow from - (961) (1 265)
financing activities
Net (decrease)/increase in (3 079) (1 879) (1 666)
cash and cash equivalents
Cash and cash equivalents 14 432 16 098 16 098
at the beginning of the
period
Cash and cash equivalents 11 353 14 219 14 432
at the end of the period
Unaudited Condensed Segment Reports
for the six month period ended 31 August 2010
Business segment report
Implemen-
tation Support
Total services services
R`000 R`000 R`000
Unaudited six months
ended 31 August 2010
Segment total revenue 52 657 19 396 7 800
Segment revenue inter- (495) - -
company
Segment revenue external 52 162 19 396 7 800
Direct segment cost (33 737) (12 877) (7 024)
Cost capitalised 2 300 - -
Segment gross profit 20 725 6 519 776
Indirect segment cost (14 424) (6 650) (3 825)
Segment result 6 301 (131) (3 049)
Unallocated expenses (4 748)
Operating profit 1 553
Finance income 435
Finance expense (1)
Income tax expense (9)
Profit for the period 1 978
Software
Research & Consulting rental
development income & other
R`000 R`000 R`000
Unaudited six months ended
31 August 2010
Segment total revenue 30 12 539 12 892
Segment revenue inter-company (30) (465) -
Segment revenue external - 12 074 12 892
Direct segment cost (5 686) (8 150) -
Cost capitalised 2 300 - -
Segment gross profit (3 386) 3 924 12 892
Indirect segment cost (1 922) (2 027) -
Segment result (5 308) 1 897 12 892
Unallocated expenses
Operating profit
Finance income
Finance expense
Income tax expense
Profit for the period
Implemen-
tation Support
Total services services
R`000 R`000 R`000
Unaudited six months ended
31 August 2009
Segment revenue from external 51 040 17 860 7 375
clients
Segment revenue inter-company - - -
Direct segment cost (26 186) (9 514) (3 520)
Cost capitalised 411 - -
Segment gross profit 25 265 8 346 3 855
Indirect segment cost (11 908) (5 346) (1 977)
Segment result 13 357 3 000 1 878
Unallocated expenses (4 938)
Operating profit 8 419
Finance income 702
Finance expense (169)
Share of profit in associate -
Income tax expense (2 761)
Profit for the period 6 191
Software
Research & Consulting rental
development income & other
R`000 R`000 R`000
Unaudited six months ended
31 August 2009
Segment revenue from external - 14 665 11 140
clients
Segment revenue inter-company - - -
Direct segment cost (4 158) (8 994) -
Cost capitalised 411 - -
Segment gross profit (3 747) 5 671 11 140
Indirect segment cost (2 336) (2 249) -
Segment result (6 083) 3 422 11 140
Unallocated expenses
Operating profit
Finance income
Finance expense
Share of profit in associate
Income tax expense
Profit for the period
Implemen-
tation Support
Total services services
R`000 R`000 R`000
Audited 12 months ended 28
February 2010
Segment revenue from external 106 508 39 326 12 667
clients
Segment revenue inter-company - - -
Direct segment cost (54 891) (19 856) (7 414)
Cost capitalised 2 759 - -
Segment gross profit 54 376 19 470 5 253
Indirect segment cost (26 351) (11 176) (4 172)
Segment result 28 025 8 294 1 081
Unallocated expenses (6 346)
Operating profit 21 679
Finance income 1 001
Finance expense (517)
Share of profit in associate 9
Income tax expense (6 012)
Profit for the period 16 160
Software
Research & Consulting rental
development income & other
R`000 R`000 R`000
Audited 12 months ended
28 February 2010
Segment revenue from external - 31 931 22 584
clients
Segment revenue inter-company - - -
Direct segment cost (9 108) (18 513) -
Cost capitalised 2 759 - -
Segment gross profit (6 349) 13 418 22 584
Indirect segment cost (4 760) (6 243) -
Segment result (11 109) 7 175 22 584
Unallocated expenses
Operating profit
Finance income
Finance expense
Share of profit in associate
Income tax expense
Profit for the period
COMMENTARY
1. ACCOUNTING POLICIES
1.1. Basis of presentation
The accounting policies applied in the preparation of these condensed interim
financial statements, which are based on reasonable judgments and estimates, are
in accordance with International Financial Reporting Standards ("IFRS") and are
consistent with those applied in the annual financial statements for the year
ended 28 February 2010. These condensed financial statements as set out in this
report have been prepared in terms of IAS 34 - Interim Financial Reporting, the
Companies Act, 1973 (Act 61 of 1973), as amended, and the Listings Requirements
of JSE Limited.
The interim results have not been audited or reviewed by the group`s auditors.
1.2. Deferred revenue and revenue recognised not yet invoiced
Deferred revenue and revenue recognised but not yet invoiced refers to the
timing difference between recognition of revenue and invoicing to the client
based on the contracts. The Group is in a net asset position which means it will
increase working capital. The assets will be converted to accounts receivable in
the short-term.
Unaudited Unaudited Audited
six months six months 12 months
ended ended ended
31 August 31 August 28 February
2010 2009 2010
R`000 R`000 R`000
Current asset
Revenue recognised not yet 8 799 6 266 6 657
invoiced
Current liability
Deferred revenue (3 537) (2 778) (1 314)
Net asset 5 262 3 488 5 343
1.3. Revenue per
geographical segments
Total South Other
Africa African
countries*
R`000 R`000 R`000
Unaudited six months ended 52 162 35 279 16 883
31 August 2010
Audited 12 months ended 28 106 508 70 293 36 215
February 2010
Unaudited six months ended 51 040 32 736 18 304
31 August 2009
* Other African countries include Kenya, Malawi, Nigeria, Ghana, Namibia,
Lesotho, Swaziland and Zimbabwe.
1.4. Trade and other payables
Unaudited Unaudited Audited
six months six months 12 months
ended Ended ended
31 August 31 August 28 February
2010 2009 2010
R`000 R`000 R`000
Trade payables 2 019 1 518 734
Withholding tax rebate 4 477 7 502 5 860
payable
VAT payable 305 601 489
Leave accrual 1 465 1 313 1 621
Liability on capital 29 359 29
reduction
Liability on dividend 1 712
payment
Other payables (accruals) 6 061 8 139 5 159
Ones & Zeros purchase price - 1 200 -
liability
Acczone purchase price 1 686 - 11 737
liability
Total 17 754 20 632 25 629
2. CORPORATE ACTIVITY
2.1 Acquisition of Ones & Zerosa
The Ones & Zeros acquisition is now finalised. All profit warranties were met
and exceeded. The full consideration was paid in previous financial years.
2.2 Acquisition of Acczone
Referring to the SENS announcement on 8 December 2009, SilverBridge acquired the
loans administration system business through the wholly-owned subsidiary Acczone
Systems (Proprietary) Limited. In terms of the purchase agreement, the purchase
consideration will, over time, be settled partly in cash and partly by the issue
of new SilverBridge ordinary shares based on the performance of the business.
The performance of the business subsequent to the 2010 year end, indicated that
the profit after tax will be substantially lower than the original projections
for purposes of determining the cost of the acquisition and in effect the value
of the goodwill. The settlement structure based on the adjusted estimated
contingent purchase consideration of the acquisition is as follows:
R`000
First settlement:
Cash payment 3 000
Acquisition cost 241
Total first settlement paid in cash 3 241
Outstanding consideration
Original estimation 11 737
Adjustment on value (10 051)
Adjusted outstanding consideration to be settled as
follows:
815 625 shares at R1.50 1 223
Cash stated at fair value (cash payment of R543 750) 463
Total 1 686
Goodwill recognised at acquisition 14 196
Change in estimate (9 846)
Goodwill as at 31 August 2010 4 350
2.3 Changes to the board
Mr Dinga Madubela was appointed as a non-executive director with effect from 14
July 2010;
Ms Nthabiseng Mokone resigned as a non-executive director with effect from 14
July 2010; and
Mr David Smollan, a non-executive director, retired by rotation on 25 June
2010.
2.4 Dividends and Capital distribution
No dividend or capital distribution was declared for the interim period under
review. It is the policy of the Group is to consider dividend payments or
capital distributions at the end of the financial year.
2.5 Subsequent events
No other events occurred subsequent to the period end that would require the
interim financial statements to be adjusted.
3. FINANCIAL RESULTS AND PERFORMANCE
The Group produced disappointing results for the six months under review. It was
mainly a result of increased delivery complexity within SDT, which resulted in
delayed revenue recognition and additional costs for corrective measures. Higher
value and more complex engagements required a higher level of expertise. We
responded by:
* contracting in a higher level of management skills including project
management;
* retrenching skills not required;
* improving resourcing on projects behind schedule and
* maintaining control of delivery milestones on other projects.
The acquisition of Acczone, a loan administration provider, increased the cost
base of the Group without delivering the expected revenue. As a result, its cost
base was reduced to align with revenue expectations. Given the lower profit
levels, we adjusted our projections of the cost of the acquisition, which will
reduce the final payment to the vendors.
The performance of the Group resulted in a total cash outflow of R3 million.
Management believes that the corrective measures taken will improve the results
and the cash flow position in the period ahead. Debtors remain under control
with a focus on collection. Expected cash payments to the Vendors of Acczone
have also reduced as a result of the performance of the company.
Segmental review
Consulting - Consulting revenue in the Group is generated by Ones & Zeros. The
company experienced the challenge of diversifying its business from being
focused on a high-value long-term engagement to several smaller more price
sensitive projects. While the transition has been successful, it has led to
margin pressure. The Group had anticipated this change and the consulting
segment performed as expected. While the focus has traditionally been on the
banking sector, this is being expanded to the life insurance industry by working
closely with SDT.
Implementation - Implementation income is derived from once-off project
engagements and revenue is recognised as a project delivers on agreed
implementation outcomes. This segment had the most significant impact on the
current performance of the Group. Delivery on projects was either delayed or
misaligned with client expectations. Corrective action has been taken regarding
a realignment of the skills base. This should improve the delivery capability,
revenue recognition and cost recoveries from clients.
Support - Support income is primarily monthly contracted although some of it is
ad hoc support to the existing client base. It represents support of an
implemented client solution, either remotely or at the client`s site. Support
revenue from SDT was below expectation as current clients reduced their ad hoc
support requirements from budget constraints. The Acczone acquisition increased
the support cost base without generating the corresponding support revenue.
Their support revenue model needs to be adjusted to be in line with the Group`s
annuity revenue model.
Software rental - Software rental is annuity based. It is mainly dependent on
usage, which increases with the number of contracts or policies administered on
the system. Software rental typically grows slowly over time as long as the
client continues using the system. Delays in implementation meant no new
software rental clients for the period under review. However, all existing
customers were maintained. Corrective action taken in the implementation area
should enable new software rental clients to be added in future periods.
Research and development - The increase in research and development costs, and
specifically the increase in the capitalisation cost, is a direct result of the
development of the loans administration system in Acczone. R1.5 million was
capitalised on the loan administration system and R 800 000 in SDT. The Group
also embarked on a project to create documented implementation methodologies to
improve service delivery and ensure cross-utilisation of skills within the
Group.
On behalf of the board of directors
Andile Sangqu Jaco Swanepoel
Chairman Chief Executive Officer
Pretoria
19 October 2010
CORPORATE INFORMATION
SILVERBRIDGE HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration No. 1995/006315/06)
JSE SHARE CODE: "SVB" ISIN CODE:
ZAE000086229
("SilverBridge" or "the Group")
DIRECTORS OF SILVERBRIDGE
Andile Sangqu (Chairman)*,
Jaco Swanepoel (CEO),
Jeremy de Villiers **, Dinga Madubela *,
Tyrrel Murray*, Sandra Duetsch,
Jaco Maritz, Sphelele Sangweni***.
(All the directors are South African citizens).
* Non-executive
**Independent non-executive
***Alternate director
REGISTERED OFFICES
First Floor, Castle View North
495 Prieska Street, Erasmuskloof,
Pretoria, 0048
(PO Box 11799, Erasmuskloof, 0048)
COMPANY SECRETARY
Fusion Corporate Secretarial Services (Proprietary) Limited
represented by
Melinda van den Berg
56 Regency Road,
Route 21 Corporate Park,
Irene, Pretoria, Gauteng
(PO Box 68528, Highveld, 0169)
Date: 19/10/2010 17:30:01 Produced by the JSE SENS Department.
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