| Wed 9 Mar 2011, 7:05 | | GIJ - Gijima Group Limited - Reviewed interim results for the six months ended |
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GIJ
GIJ
GIJ - Gijima Group Limited - Reviewed interim results for the six months ended
31 December 2010
Gijima Group Limited
(Incorporated in the Republic of South Africa)
Registration number 1998/021790/06
Share code: GIJ ISIN: ZAE000147443
("Gijima" or "the Group" or "the Company")
REVIEWED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2010
Salient Features
- Settlement with the Department of Home Affairs
- Once-off settlement expense of R373,9 million
- Weak performance in Professional Services
- Strong growth in Managed Services
- Investing in the future
Overview
Gijima is a leading South African Group which operates in the information and
communication technology (ICT) services sector. Organised in two operational
Strategic Business Units, namely Managed Services and Professional Services, we
offer end to end infrastructure management and professional services.
The results for the six months ended 31 December 2010 have been disappointing
for Gijima and are largely reflective of the impact of the dispute and the
subsequent resolution thereof with the Department of Home Affairs (DHA). We
believe the settlement with the DHA was the best solution possible for both
parties, as it is important for our relationships with Government and our
clients. Gijima will continue to work with the DHA, as its partner, to deliver
on this project. This is important for the growth of our country and this system
will transform the lives of millions of South Africans by changing how they
access much-needed services using technology.
The dispute with DHA has had a severe impact on Gijima`s performance for the six
months ended 31 December 2010, not only in terms of the settlement expenses and
the loss of revenue from the "Who Am I Online" (WAIO) contract itself over this
period, but also on the company`s ability to trade optimally under the overhang
of the impasse that has now been resolved. No revenue was recorded on the WAIO
contract during the period under review.
There has been limited growth in the ICT industry in the first half of Gijima`s
2011 financial year, with public sector spending still depressed after the
global economic downturn and private sector growth recovery slower than
expected.
Settlement agreement between the Department of Home Affairs and Gijima
Shareholders are referred to the various JSE SENS announcements released since
April 2010 where Gijima reported that it had received a letter from the DHA, in
which the Department contested the validity of a contract it concluded with
Gijima in June 2008. The contract for the WAIO system covers the design,
development and implementation of an integrated core system for the DHA,
including all business processes of both its Civics and Immigration Divisions.
Gijima and the DHA signed a negotiated settlement agreement to resolve the
dispute as more fully detailed in the JSE SENS announcement of 7 March 2011. The
resolution deals with the settlement of historic matters on the WAIO contract as
well as with the continuation and completion of the WAIO project.
As part of the settlement agreement Gijima has agreed to incur certain
manageable losses. These losses are separately disclosed in note 5 to the
condensed consolidated financial statements. The Board of Directors` decision to
settle the dispute with the Department considered the long-term future growth of
the company, thereby avoiding protracted and costly litigation and bringing the
matter to finality.
Operational review
Revenue reduced by 13,6% from last year. Revenue growth of 15,6% in our Managed
Services Division was off-set by a reduction in revenue in our Professional
Services environment of 39,7%.
Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) reduced by
72,8% when the direct impact of the DHA settlement expense is ignored. Our
Managed Services Division increased its profit by 13,2% and our Professional
Services` profit reduced by 143,5%.
The revenue growth in our Managed Services Division was supported by excellent
performances by our distributed computing and unified communications offerings,
backed by a consistent performance of our hosting business. All areas of the
Division grew their revenue at enhanced margins.
Gijima embarked on an exciting journey to establish a competency and related
offerings for so-called "on-demand services". A brand new Integrated Service
Centre (iSC) as a key component within this framework was successfully
commissioned during the period under review. The purpose of the iSC is to
provide world class operational support to our clients in a professional,
consistent and repeatable manner, through standardised processes, technology and
an enhanced level of skill. This centre establishes a single hub for all
Gijima`s support services via an Operations Response Centre to traditional as
well as new generation technology clients. It offers immediate benefits to our
current clients that utilise this modern facility. This, together with the
operational efficiencies created by the use of advanced software tools to
enhance remote support services saw a significant growth in profits in our
distributed computing environment.
The energy of the refocused management team in the unified communications
environment contributed to a significant growth in both revenue and profits.
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 in this environment. Gijima has secured strategic relationships with
both Broadband Infraco and Dark Fibre Africa. This will enable access to a
carrier capability as well as a metro communications infrastructure that will
add to Gijima becoming a major player in the Data Centre and Disaster Recovery
space.
Our Professional Services Division, and in particular the systems integration
and training environments, was severely impacted by the DHA dispute as well as
generally depressed trading conditions which saw its revenue and profits
significantly down from last year.
Various initiatives and partnerships concluded during the period under review
will stand the systems integration environment in good stead for the next and
future reporting periods. These cover disciplines such as a supply chain risk
management and on demand open source ERP (Business Edge).
Our ERP (SAP) environment performed well during the period under review. We have
added new clients to the SAP support Hub, increasing the ERP team`s existing
footprint in the SAP Mining support landscape. The ERP team has also been
contracted for the first phase of a large re-implementation project and the
general prospects in the ERP environment are promising. Exciting initiatives in
this environment include the establishment of a consulting capability focusing
on delivering expert strategic advice to clients, the implementation of various
new SAP products with growth opportunities, and the development of industry-
specific solutions in the manufacturing and retail environments.
Gijima`s training and placements offerings had a challenging six months in a
subdued marketplace. Its new consultative go-to-market business model has
however started to bear fruit with activity levels gradually increasing.
Our mining technical solutions unit showed positive revenue growth, but at a
reduced level of profitability as it continued to absorb the cost of investment
in its MineRP product suite as well as on the establishment of offices around
the world to spearhead the internationalisation of Gijima. The MineRP set of
products is a revolutionary world first enterprise mining solution that is
gaining traction in international markets.
The Group`s depreciation and amortisation charge ended the six months marginally
higher than last year as capital expenditure levels remained largely unchanged.
The Group`s net financial expense ended the six months R5,4 million higher than
last year. Lower cash balances significantly reduced interest income, whilst the
interest expense item is slightly lower than last year as a result of a reduced
debt level which was offset by the impact of a net discounting cost of R3,1
million. The discounting cost refers to the discounting of promissory notes with
a face value of R154,3 million on a project to facilitate the matching of cash
inflows and outflows.
The slightly lower than expected income tax credit in the income statement
results from STC payments as well as an additional R4,8 million provision in
settlement of a historic matter with SARS.
The Group`s cash balances reduced to R130,2 million at 31 December 2010. The
WAIO related expenses were the most significant contributor to the utilisation
of cash in operations before working capital changes of R116,9 million. The
Group`s investment in working capital contributed another R34,3 million to the
reduction of R209,7 million in the cash balances during the period under review.
The investment in working capital is mostly related to a single project that is
managed on a construction contract principle with long intervals between
milestone payment dates.
Dividends
The board has elected to suspend the payment of dividends for the time being.
The board will continue to review the financial position of the Group and is
committed to the continuation of dividend payments as soon as conditions allow.
Prospects
The impact of the settlement with the DHA has been a significant setback. The
impact is felt in this financial period and the dispute is behind us. Moving
forward with Gijima`s current contract with the Department as well as future
prospects, success will be shown in the business, albeit that second half
earnings from our Professional Services Division will remain depressed while we
reorganise the division to achieve the earnings levels of prior years.
In order to be resilient against the rapid changes in the industry and the
economy at large, and to ensure we remain relevant to all our stakeholders, we
are in the process of transforming our business model from a business unit and
product focus to a client centric focus. Features of this model include a
committed industry structure with focused industry solutions and collaborative
staff optimisation. Our new business model will reflect a lower support cost
base that will match the reduction in revenue expected from the amended scope of
the WAIO project. The cost of establishing the new model over the next six to
twelve months will impact on Gijima`s margins over the same period.
Despite our strategic focus on client centricity, relentless innovation remains
a key pillar of Gijima`s strategy going forward. There is a major effort to
harness the company`s creative potential and ideas generated by staff are
constantly evaluated for their commercial viability. This is in line with our
belief that new products and services are of paramount importance to accommodate
growth in the market. Innovation in our company needs the support of a highly
skilled technology base. In line with our new tagline "Technology People" we are
rolling out an extended programme to upgrade the skills of our engineers through
training and incentives.
In line with the market trend we will continue to expand our capability to
provide On-demand Cloud Computing Services. Our goal is set on the development
of scalable and world-class services and to offer our clients flexibility in the
consumption of these services.
We have continued with the internationalisation of Gijima with the opening of an
office in Chile during the period under review. We are also in the process of
establishing an office in Brazil to service our International mining clients.
Gijima will remain resolute to its strategy and the settlement with DHA is
recognised as a watershed moment in the history of our company. Our focus will
remain on delivering long-term value for our clients, understanding their
requirements and delivering on our mandate to remain a first-class ICT company
in South Africa and Internationally.
Gijima board changes
The following changes in the Board have taken place for the six months ended 31
December 2010:
- Dr NJ Dlamini resigned on 31 August 2010.
- Mr AH Trikamjee was appointed on 13 August 2010.
- Ms N Fakude was appointed on 4 November 2010.
RW Gumede PJ Bogoshi CJH Ferreira
Non-executive Chief Executive Officer Chief Financial Officer
Chairman
7 March 2011
Condensed consolidated income statement
for the period ended 31 December 2010
Reviewed Unreviewed Audited
31 December 31 December 30 June
2010 2009 2010
Notes R`000 R`000 R`000
Revenue 1 243 714 1 440 099 2 943 417
Other operating income 390 416 3 913
Income 1 244 104 1 440 515 2 947 330
(Loss)/earnings before (331 342) 156 702 285 674
interest, tax,
depreciation and
amortisation charges
(EBITDA)
EBITDA before settlement 42 605 156 702 285 674
and related expenses
Settlement and related 5 (373 947) - -
expenses
Depreciation and (22 339) (21 772) (44 686)
amortisation charges
Operating (loss)/profit 4 (353 681) 134 930 240 988
Financial income 5 495 11 337 22 609
Financial expenses (18 624) (19 035) (34 375)
Net financial expense (13 129) (7 698) (11 766)
(Loss)/profit before tax (366 810) 127 232 229 222
Income tax 95 986 (41 431) (75 059)
(Loss)/profit for the (270 824) 85 801 154 163
period
Total (loss)/profit
attributable to
Owners of the parent (271 789) 85 801 158 610
Non-controlling interest 965 - (4 447)
(270 824) 85 801 154 163
Basic (loss)/earnings per (28,25) 8,80 16,37
ordinary share (cents)
Diluted (loss)/earnings (28,14) 8,80 16,31
per ordinary share (cents)
Headline (loss)/earnings (28,24) 8,83 16,44
per ordinary share (cents)
Diluted headline (28,13) 8,83 16,37
(loss)/earnings per
ordinary share (cents)
Weighted average number of 962 071 974 732 968 666
shares (000`s)
Diluted number of shares 965 860 974 732 972 455
(000`s)
Number of shares in issue 961 565 973 827 961 565
(000`s)
Calculation of headline
(loss)/earnings
(Loss)/profit attributable (271 789) 85 801 158 610
to owners of the parent
Loss on sale of businesses 74 304 827
and property, plant and
equipment
Tax effect (21) - (232)
Headline (loss)/earnings (271 736) 86 105 159 205
Condensed consolidated statement of comprehensive income
for the period ended 31 December 2010
Reviewed Unreviewed Audited
31 December 31 December 30 June
2010 2009 2010
R`000 R`000 R`000
(Loss)/profit for the period (270 824) 85 801 154 163
Other comprehensive income
Currency translation differences (15 490) (3 944) 9 812
for foreign operations
Currency translation on the net 8 100 - (11 169)
investments for foreign
operations
Income tax on other comprehensive (27) (1 585) (55)
income
Total comprehensive (loss)/income (278 241) 80 272 152 751
for the period
Total comprehensive (loss)/income
attributable to
(Loss)/profit attributable to (279 206) 80 272 157 198
owners of the parent
Profit/(loss) attributable to non- 965 - (4 447)
controlling interest
(278 241) 80 272 152 751
Notes to the condensed consolidated financial statements
1. Statement of compliance
The condensed Group interim financial statements are prepared and presented in
accordance with International Financial Reporting Standards ("IFRS") in
particular IAS 34 Interim Financial Reporting, and the AC 500 standards as
issued by the Accounting Practices Board, and the requirements of the Companies
Act of South Africa.
These condensed 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.
The condensed Group financial statements of Gijima Group Limited for the six
months ended 30 December 2010 have been reviewed by the company`s auditor, KPMG
Inc. In their review report dated 7 March 2011 KPMG Inc state that their review
was conducted in accordance with the International Standard on Review
Engagements 2410, Review of Interim Information Performed by the Independent
Auditor of the Entity, and have expressed an unmodified conclusion on the
condensed Group interim financial statements.
Their review report is available for inspection at the company`s registered
office. The company`s December 2010 results are available to the user on the
company`s website: www.gijima.com.
These condensed consolidated interim financial statements were approved by the
Board of Directors on 7 March 2011.
2. Significant accounting policies
The accounting policies applied by the Group in these condensed consolidated
interim 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 2010.
3. Dividend paid
A cash dividend from income reserves of 2,5 cents per share was paid to
shareholders on 29 November 2010 in respect of the 2010 financial year. The last
date to trade to qualify for this dividend was 19 November 2010.
4. Operating (loss)/profit
The following material items have been included in the calculation of operating
(loss)/profit
Reviewed Unreviewed Audited
31 December 31 December 30 June
2010 2009 2010
R`000 R`000 R`000
Exchange rate gains/(losses) on 5 395 3 861 (1 409)
translation
Loss on sale of businesses and (74) (304) (595)
property, plant and equipment
5 321 3 557 (2 004)
5. Dispute settlement
The following material items relate to costs incurred by Gijima as part of a
settlement agreement between Gijima Holdings (Pty) Ltd, a wholly owned
subsidiary of Gijima Group Limited and the DHA regarding the WAIO contract. The
impact of the direct settlement and related expenses have been included in the
operating loss for the period ended 31 December 2010.
Reviewed Unreviewed Audited
31 December 31 December 30 June
2010 2009 2010
R`000 R`000 R`000
Settlement expenses (357 740) - -
Settlement related expenses (16 207) - -
Gross settlement cost (373 947) - -
Deferred tax 104 705 - -
Net of tax (269 242) - -
6. Contingent liabilities
At 31 December 2010 the Group had contingent liabilities in respect of
registered performance bonds, bank lease and other guarantees to the value of
R4,9 million (June 2010: R3,8 million).
Condensed consolidated segmental analysis
for the period ended 31 December 2010
Reviewed Unreviewed Audited
31 December 31 December 30 June
2010 2009 2010
R`000 R`000 R`000
Revenue
Professional Services 441 489 731 951 1 458 219
Managed Services 818 508 708 148 1 520 030
1 259 997 1 440 099 2 978 249
Internal revenue adjustment (16 283) - (34 832)
Consolidated revenue 1 243 714 1 440 099 2 943 417
Segment results
Professional Services (37 729) 86 752 158 092
Managed Services 62 208 54 959 106 509
Settlement expenses (357 740) - -
Settlement related expenses (16 207) - -
Unallocated expenses (17 342) (14 479) (35 379)
Other corporate expenses (9 608) (10 642) (22 204)
Exchange rate losses/(gains) on 5 395 3 861 (1 409)
translation
Net financial expense (13 129) (7 698) (11 766)
Consolidated (loss)/profit before tax (366 810) 127 232 229 222
Condensed consolidated statement of financial position
as at 31 December 2010
Reviewed Unreviewed Audited
31 December 31 December 30 June
2010 2009 2010
R`000 R`000 R`000
ASSETS
Non-current assets 346 118 273 929 300 776
Property, plant and equipment 82 733 87 387 91 334
Intangible assets 131 274 128 718 138 285
Deferred tax assets 132 111 57 824 71 157
Current assets 758 181 1 235 019 1 313 751
Inventories 49 913 45 764 42 554
Trade and other receivables 574 697 562 601 927 944
Current tax assets 418 1 475 184
Cash and cash equivalents 133 153 625 179 343 069
Total assets 1 104 299 1 508 948 1 614 527
EQUITY AND LIABILITIES
Equity attributable to owners of the 199 880 459 539 501 620
parent
Non-controlling interest (3 482) - (4 447)
Non-current liabilities 367 678 311 750 416 222
Interest-bearing liabilities 300 237 257 189 300 706
Operating lease liability 28 037 26 985 27 821
Amounts due to vendors 4 174 - 6 065
Deferred tax liabilities 35 230 27 576 81 630
Current liabilities 540 223 737 659 701 132
Trade and other payables 529 386 589 943 687 095
Short-term borrowings - 100 000 -
Provisions 3 489 8 451 6 119
Bank overdrafts 2 978 2 604 3 152
Amounts due to vendors 2 068 - 2 039
Current tax liabilities 2 302 36 661 2 727
Total equity and liabilities 1 104 299 1 508 948 1 614 527
Condensed consolidated statement of cash flows
for the period ended 31 December 2010
Reviewed Unreviewed Audited
31 December 31 December 30 June
2010 2009 2010
R`000 R`000 R`000
Cash flows from operating activities
Cash (utilised in)/generated from (116 952) 173 771 309 329
operations before working capital
changes
Working capital changes (34 272) 37 788 (225 105)
Net financial expense (13 092) (7 270) (15 585)
Interest received 6 210 11 641 22 161
Interest paid (19 302) (18 911) (37 746)
Dividend paid (24 039) (49 073) (73 105)
Tax paid (12 027) (3 147) (28 697)
Net cash (used in)/generated from (200 382) 152 069 (33 163)
operating activities
Cash flows from investing activities
Purchase of software (13) (1 971) (7 114)
Purchase of property, plant and (6 788) (10 570) (29 382)
equipment
Decrease in amounts due to vendors (2 090) - -
Business acquired - - (4 900)
Net cash used in investing activities (8 891) (12 541) (41 396)
Cash flows from financing activities
Repayment of short-term borrowings (469) (100 520) (201 003)
Repayment of interest-bearing - - (256 000)
borrowings
Own shares acquired - (824) (12 912)
Proceeds from short-term borrowings - 100 000 100 000
Proceeds from interest-bearing - - 300 000
borrowings
Net cash used in financing activities (469) (1 344) (69 915)
Net (decrease)/increase in cash and (209 742) 138 184 (144 474)
cash equivalents
Cash and cash equivalents at the 339 917 484 391 484 391
beginning of the year
Cash and cash equivalents at the end 130 175 622 575 339 917
of the period
Condensed consolidated statement of changes in equity
for the period ended 31 December 2010
Non-
Distri- distri-
Share Share butable butable
capital premium reserves reserves
Group R`000 R`000 R`000 R`000
Balance at 1 July 2009 974 654 609 (169 858) (58 038)
Profit for the period 85 801
Other comprehensive income
Currency translation (5 529)
differences
Revaluation of building -
Total comprehensive income for - - 85 801 (5 529)
the period
Transactions with owners,
recorded directly in equity
Share-based payment 1 477
transactions
Dividend paid (49 073)
Share issue -
Share issue expenses -
Own shares acquired (1) (823)
Total transactions with owners (1) (823) (47 596) -
Balance at 31 December 2009 973 653 786 (131 653) (63 567)
Profit for the period 72 809
Other comprehensive income
Currency translation 15 286
differences
Currency translation on net (11 169)
investments
Total comprehensive income for - - 72 809 4 117
the period
Transactions with owners,
recorded directly in equity
Share-based payment 1 275
transactions
Dividend paid (24 032)
Own shares acquired (12) (12 076)
Total transactions with owners (12) (12 076) (22 757) -
Balance at 30 June 2010 961 641 710 (81 601) (59 450)
(Loss)/profit for the period (271 789)
Other comprehensive
income/(loss)
Currency translation (15 517)
differences
Currency translation on net 8 100
investments
Total comprehensive loss for - - (271 789) (7 417)
the period
Transactions with owners,
recorded directly in equity
Share-based payment 1 505
transactions
Dividend paid (24 039)
Own shares acquired - -
Total transactions with owners - - (22 534) -
Balance at 31 December 2010 961 641 710 (375 924) (66 867)
Non-
controll-
ing Total
Total interest equity
Group R`000 R`000 R`000
Balance at 1 July 2009 427 687 - 427 687
Profit for the period 85 801 85 801
Other comprehensive income
Currency translation (5 529) (5 529)
differences
Revaluation of building - -
Total comprehensive income for 80 272 - 80 272
the period
Transactions with owners,
recorded directly in equity
Share-based payment 1 477 1 477
transactions
Dividend paid (49 073) - (49 073)
Share issue - -
Share issue expenses - -
Own shares acquired (824) (824)
Total transactions with owners (48 420) - (48 420)
Balance at 31 December 2009 459 539 - 459 539
Profit for the period 72 809 (4 447) 68 362
Other comprehensive income
Currency translation 15 286 15 286
differences
Currency translation on net (11 169) (11 169)
investments
Total comprehensive income for 76 926 (4 447) 72 479
the period
Transactions with owners,
recorded directly in equity
Share-based payment 1 275 1 275
transactions
Dividend paid (24 032) (24 032)
Own shares acquired (12 088) (12 088)
Total transactions with owners (34 845) - (34 845)
Balance at 30 June 2010 501 620 (4 447) 497 173
(Loss)/profit for the period (271 789) 965 (270 824)
Other comprehensive
income/(loss)
Currency translation (15 517) - (15 517)
differences
Currency translation on net 8 100 8 100
investments
Total comprehensive loss for (279 206) 965 (278 241)
the period
Transactions with owners,
recorded directly in equity
Share-based payment 1 505 1 505
transactions
Dividend paid (24 039) (24 039)
Own shares acquired - -
Total transactions with owners (22 534) - (22 534)
Balance at 31 December 2010 199 880 (3 482) 196 398
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*
N Fakude*
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)
5th Floor, 11 Diagonal Street, Johannesburg, 2001.
(PO Box 4844, Johannesburg, 2000)
For more information please visit
www.gijima.com
Date: 09/03/2011 07:05:02 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
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employees and agents accept no liability for (or in respect of) any direct,
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