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BTG - Unaudited consolidated interim financial results for the six months ended
31 August 2005
BYTES TECHNOLOGY GROUP LIMITED
IT SERVICES FOR THE ENTERPRISE
Incorporated in the Republic of South Africa
Registration number 1911/003874/06
Share code: BTG & ISIN: ZAE000029526
("BTG" or "the company")
ENDURING PARTNERSHIPS
* Revenue up 23%
* Operating income up 35%
* Headline earnings per share up 31%
UNAUDITED CONSOLIDATED INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED
31 AUGUST 2005
Income statements
IFRS IFRS
IFRS restated restated
Six months Six months Year
ended ended ended
% 31 Aug 31 Aug 28 Feb
Figures in R millions Note Change 2005 2004 2005
Revenue 23% 1 747 1 418 2 906
Operating income before
goodwill impairment and
capital items 35% 128 95 221
Net finance costs (9) (8) (15)
Income from associates 4 7
Goodwill adjustment 1 (3) (4)
Goodwill impairment (130) (174)
Income/(loss) before
taxation 116 (39) 35
Taxation (40) (33) (72)
Income/(loss) for the
period 76 (72) (37)
Attributable to:
Equity holders of BTG 73 (76) (44)
Minority interest 3 4 7
Income/(loss)
for the period 76 (72) (37)
Weighted number
of shares in
issue (million) 162,7 153,4 155,3
Earnings/(loss)
per share
basic (cents) 44,7 (49,4) (28,6)
Earnings/(loss)
per share
fully diluted
(cents) 36,8 (50,8) (37,9)
Headline
earnings per
share basic
(cents) 2 31% 46,5 35,4 86,3
Headline
earnings per
share fully
diluted (cents) 38,2 28,1 69,3
Dividends per
share paid
(cents) 32,0 22,0 22,0
Notes:
1. Deferred tax
assets on income tax
losses carried forward were not
raised in the former CS Computer
Services Holdings operating
companies due to there being
insufficient trading history
within the restructured BTG
environment to assess the future
recovery of such assets.
Certain of these operating
companies have made taxable
profits, the taxation relating
to which is now being recognised
by a commensurate adjustment
to goodwill.
2. Headline earnings
Attributable income/(loss) is
reconciled to headline earnings
as follows:
Attributable to ordinary
shareholders 73 (76) (44)
Goodwill adjustment 3 4
Goodwill impairment 130 174
Headline earnings 76 54 134
3. Fully diluted earnings
Fully diluted earnings and
fully diluted headline earnings
have been calculated on the basis
that Kagiso Strategic Investments
(Pty) Limited exercised its
full option on 22% of the shares
in Bytes Technology Group South Africa
(Pty) Limited effective 1 March 2004.
It is assumed that the proceeds on the
issue of these shares of R198 million
would have attracted interest at 4,4%
after tax for the period under review.
Income/(loss) attributable to
ordinary shareholders is reconciled
to fully diluted income/(loss) as
follows:
Income/(loss) attributable
to ordinary
shareholders 73 (76) (44)
Interest received on
proceeds 4 7 13
Additional 22% minority
interest (15) (15) (32)
Fully diluted
income/(loss) 62 (84) (63)
Headline earnings are
reconciled to fully diluted
headline earnings as
follows:
Headline earnings 76 54 134
Interest received on
proceeds 4 7 13
Additional 22% minority
interest (16) (15) (33)
Fully diluted headline
earnings 64 46 114
4. The group has adopted IFRS for the year ending 28 February 2006. The
financial information of comparative periods has been restated in accordance
with IFRS as set out in the supplementary notes.
Balance sheets
IFRS IFRS
IFRS restated restated
31 Aug 31 Aug 28 Feb
Figures in R millions 2005 2004 2005
ASSETS
Non-current assets 694 487 547
Property, plant and equipment 112 93 107
Goodwill and intangible assets 450 301 357
Investments and loans 67 28 23
Finance lease assets 29 24 24
Deferred taxation 36 41 36
Current assets 878 827 930
Inventory 153 147 139
Short-term loans 28 30 31
Accounts receivable 697 438 467
Bank and cash 212 293
Total assets 1 572 1 314 1 477
EQUITY AND LIABILITIES
Equity
Share capital, retained earnings and
reserves 489 385 465
Minority interest 13 7 10
Total equity 502 392 475
Long-term liabilities 21 217 217
Finance lease liabilities 29 24 24
Current liabilities 1 020 681 761
Short-term loans 28 37 43
Accounts payable 811 608 676
Taxation 31 36 41
Bank overdraft 150 1
Total equity and liabilities 1 572 1 314 1 477
Shares in issue at end of period (million) 163,3 153,5 161,8
Net asset value per share (cents) 299,8 251,7 287,9
Net tangible asset value per share (cents) 24,5 55,8 67,0
Condensed cash flow statements
IFRS IFRS
IFRS restated restated
Six months Six months Year
ended ended ended
31 Aug 31 Aug 28 Feb
Figures in R millions 2005 2004 2005
Operating activities (70) 124 285
Cash generated by operations 136 117 286
Changes in working capital (100) 65 94
Net finance costs (9) (8) (15)
Taxation paid (42) (16) (46)
Cash (utilised in)/generated from
operating activities (15) 158 319
Dividend paid (55) (34) (34)
Net investing activities (173) 22 (68)
Financing activities (199) (16) (7)
Net cash (utilised)/generated (442) 130 210
Cash and cash equivalents
at beginning of period 292 82 82
at end of period (150) 212 292
Abridged segmental analysis
IFRS IFRS
IFRS restated restated
Six months Six months Year
ended ended ended
31 Aug 31 Aug 28 Feb
Figures in R millions 2005 2004 2005
Revenue
ICT Infrastructure and Services 753 595 1 244
Software, Consulting and Document
Services 612 567 1 133
Specialised Equipment and Services 381 320 649
1 746 1 482 3 026
Corporate and Other 1 (5)
Total all operations 1 747 1 482 3 021
Less equity accounted operations (64) (115)
1 747 1 418 2 906
Operating income before goodwill
impairment
and capital items
ICT Infrastructure and Services 37 8 46
Software, Consulting and Document
Services 68 54 107
Specialised Equipment and Services 54 49 95
159 111 248
Corporate and Other (31) (11) (17)
Total all operations 128 100 231
Less equity accounted operations (5) (10)
128 95 221
GEOGRAPHICAL SEGMENTS
Revenue by market
South Africa 1 371 1 145 2 374
International 376 337 647
Total all operations 1 747 1 482 3 021
Operating income before goodwill
impairment
and capital items by market
South Africa 112 95 221
International 16 5 10
Total all operations 128 100 231
Includes 100% of revenue from associates and our proportionate share of their
operating profit. All comparative numbers have been restated for IFRS and the
inclusion of the operations acquired from CS Computer Services Holdings Limited
into the various segments.
Supplementary information
IFRS IFRS
IFRS restated restated
31 Aug 31 Aug 28 Feb
Figures in R millions 2005 2004 2005
Depreciation 21 16 40
Foreign exchange gains/(losses) 4 (1) (1)
Capital expenditure 23 22 98
Capital commitments 11
Contingent liabilities 1
Operating lease commitments
Payable within the next 12 months:
property 41 30 53
plant, equipment and vehicles 17 20 19
Payable thereafter:
property 226 75 199
plant, equipment and vehicles 11 27 18
Deferred
Share hedging Accumulated
Figures in R millions capital Reserves reserve deficit
Balance at 29 February
2004 IFRS restated 652 88 (3) (274)
Loss attributable to
shareholders (76)
Dividend paid (34)
Issue of share capital 1
Disposal of minority"s
equity interests in
subsidiary
Deferred hedging reserve 4
Fair value adjustment to
cash flow hedge after tax 1
Release of fair value
adjustment 3
Balance at 31 August 2004
IFRS restated 653 88 1 (384)
Income attributable to
shareholders 32
Foreign currency
translation reserve (1)
Issue of share capital 50
Share based payments 1
Transfer to accumulated
deficit (68) 68
Fair value adjustment to
cash flow hedge after tax (2)
Balance at 28 February
2005 IFRS restated 703 20 (1) (284)
Income attributable to
shareholders 73
Foreign currency
translation reserve (1)
Dividend paid (55)
Issue of share capital 6
Share based payment 1
Deferred hedging reserve
Fair value adjustment to
cash flow hedge after tax (1)
Release of fair value
adjustment 1
Balance at 31 August 2005
IFRS 709 20 (1) (266)
Premium on
minority
equity Minority Total
Figures in R millions transactions Total interest equity
Balance at 29 February 2004
IFRS restated 463 2 465
Loss attributable to
shareholders (76) 4 (72)
Dividend paid (34) (34)
Issue of share capital 1 1
Disposal of minority"s
equity interests in
subsidiary 27 27 1 28
Deferred hedging reserve 4 4
Fair value adjustment to
cash flow hedge after tax 1 1
Release of fair value
adjustment 3 3
Balance at 31 August 2004
IFRS restated 27 385 7 392
Income attributable to
shareholders 32 3 35
Foreign currency translation
reserve (1) (1)
Issue of share capital 50 50
Share based payments 1 1
Transfer to accumulated
deficit
Fair value adjustment to
cash flow hedge after tax (2) (2)
Balance at 28 February 2005
IFRS restated 27 465 10 475
Income attributable to
shareholders 73 3 76
Foreign currency translation
reserve (1) (1)
Dividend paid (55) (55)
Issue of share capital 6 6
Share based payment 1 1
Deferred hedging reserve
Fair value adjustment to
cash flow hedge after tax (1) (1)
Release of fair value
adjustment 1 1
Balance at 31 August 2005
IFRS 27 489 13 502
Reconciliation of net debt
IFRS IFRS
IFRS restated restated
31 Aug 31 Aug 28 Feb
Figures in R millions 2005 2004 2005
Long-term liabilities (21) (217) (217)
Finance lease liabilities (29) (24) (24)
Short-term loans (28) (37) (43)
Total debt per balance sheet (78) (278) (284)
Less related financed lease assets 57 54 55
Total debt (21) (224) (229)
Bank and cash (150) 212 292
Total net (debt)/cash (171) (12) 63
Supplementary notes to the adoption of International Financial Reporting
Standards
BASIS OF PREPARATION
The group has adopted International Financial Reporting Standards (IFRS) for
the year ending 28 February 2006. The interim results have been prepared and
presented in accordance with IAS 34 Interim financial reporting.
The financial statements for the year ending 28 February 2006 will be the
group"s first consolidated IFRS-compliant financial statements and hence IFRS 1
First time adoption of IFRS has been applied in preparing this interim report.
An explanation of how the transition to IFRS has affected the previously
reported financial position and performance of the group is provided below.
SIGNIFICANT CHANGES TO THE GROUP"S ACCOUNTING POLICIES AS A RESULT OF THE
ADOPTION OF IFRS
1. Goodwill
All business combinations are accounted for by applying the "purchase
method". Goodwill represents amounts arising on acquisition of
subsidiaries and associates. In respect of business combinations that have
occurred since the IFRS transition date, 1 March 2004, goodwill represents
the differ- ence between the cost of the acquisition and the fair value of
the net identifiable assets and contingent liabiities acquired.
The group has made an election in terms of IFRS 1 that IFRS 3 will only be
applied from 1 March 2004. In respect of acquisitions prior to this date,
goodwill is included as at 1 March 2004 at the amount previously recorded
under SA GAAP. The classification and accounting treatment of business
combinations that occurred prior to 1 March 2004 has not been reconsidered
in preparing the group"s opening IFRS balance sheet at 1 March 2004.
From 1 March 2004 goodwill is stated at cost less accumulated impairment
losses. Goodwill is allocated to cash-generating units and is no longer
amortised but tested annually for impairment.
Previously goodwill arising on each acquisition was amortised over its
useful life on a straight line basis and subjected to annual impairment
testing.
2. Premium on disposal of minority interest in subsidiary
Following the presentation of minority interests in equity any increase or
decrease in ownership interests in subsidiaries without a change in
control are recognised as equity transactions in the consolidated
financial statements. Accordingly any premium or loss on subsequent sales
of equity instruments to minority interests are recognised directly in
the equity of the parent shareholder.
Previously premiums on subsequent sales of equity instruments to
minorities were taken to profit as a capital item in the income statement.
3. Intangible assets
Intangible assets other than goodwill that are acquired by the group are
stated at cost less accumulated amortisation and impairment losses.
Amortisation is charged to the income statement on a straight-line basis
over the estimated useful lives of intangible assets unless such lives are
indefinite. Intangible assets with an indefinite useful life are tested
systematically for impairment at each balance sheet date.
Other intangible assets are amortised from the date they are available for
use. The estimated useful lives are as follows:
Patents and trademarks Five years
Distribution rights Term of distribution agreements
Previously distribution rights were classified as goodwill on the balance
sheet and amortised to the income statement as goodwill amortisation on a
straight-line basis over the useful life of the intangible asset.
4. Share-based payment transactions
The fair value of share options and deferred delivery shares granted to
employees is recognised as an employee expense with a corresponding
increase in equity. The fair value is measured at grant date and expensed
over the period during which the employee becomes unconditionally entitled
to the equity instruments (the vesting period). The fair value of the
instruments granted is measured using the Black Scholes valuation
technique, taking into account the terms and conditions upon which the
instruments are granted. This accounting policy has been applied to all
equity instruments granted after 7 November 2002 that had not yet vested
at 1 January 2005. The fair value of share-based payments was not
recognised under the group"s previous accounting policies.
5. Straightlining of operating lease payments
Payments made under operating leases are recognised in the income
statement on a straight-line basis over the term of the lease.
Past practice, whereby operating lease payments were expensed on a
payments basis, was based on an interpretation that was generally accepted
in the South African community. This interpretation considered the
contractual payments basis as being most representative of the time
pattern of the entity"s benefit obtained from the leased property. The
global spotlight has led to the view that the entity is obliged to adopt
the straight-line basis of accounting for all lease payments. The
adjustment has been made as required by IAS8 with the necessary
restatement of comparative figures.
RECONCILIATION OF EQUITY
28 Feb 31 Aug 1 Mar
Figures in R millions Reference 2005 2004 2004
Equity previously reported under SA
GAAP
(audited) 405 358 466
Adjustment upon adoption of IFRS 70 34 (1)
Equity reported under IFRS 475 392 465
Equity adjustments
Retained earnings:
Reversal of goodwill amortisation 1 72 36
Reversal of premium on minority
equity transactions 2 (27) (27)
Expensing of share based payments 4 (1)
Operating leases 5 (2) (2) (1)
Share-based payment reserve 4 1
Premium on minority equity
transactions 2 27 27
70 34 (1)
Assets and liabilities adjustments
Goodwill and intangible assets 1 and 3 72 36
Accounts payable 5 (2) (2) (1)
70 34 (1)
RECONCILIATION OF PROFIT FOR THE YEAR ENDED 28 FEBRUARY 2005
Audited
As Effect
reported of IFRS
Figures in R millions Reference previously IFRS restated
Operating income before
goodwill impairment
and capital items 3, 4 and 5 226 (5) 221
Net finance costs (15) (15)
Income from associates 7 7
Goodwill adjustment (4) (4)
Goodwill amortisation and
impairment 1 and 3 (254) 80 (174)
Capital items 2 27 (27)
(Loss)/income before
taxation (9) 44 35
Taxation (72) (72)
(Loss)/income for the year (81) 44 (37)
Attributable to:
Equity holders of BTG (88) 44 (44)
Minority interests 7 7
(Loss)/income for the year (81) 44 (37)
RECONCILIATION OF PROFIT FOR THE SIX MONTHS ENDED 31 AUGUST 2004
As Effect
reported of IFRS
Figures in R millions Reference previously IFRS restated
Operating income before
goodwill impairment
and capital items 3, 4 and 5 97 (2) 95
Net finance costs (8) (8)
Income from associates 4 4
Goodwill amortisation and
impairment 1 and 3 (167) 37 (130)
Capital items 2 27 (27)
(Loss)/income before
taxation (47) 8 (39)
Taxation (33) (33)
(Loss)/income for the
period (80) 8 (72)
Attributable to:
Equity holders of BTG (84) 8 (76)
Minority interest 4 4
(Loss)/income for the
period (80) 8 (72)
COMMENTARY
OVERVIEW
The directors are pleased to present a satisfactory set of results for the six
months under review. These results reflect in full for the first time the
inclusion of the businesses acquired from CS Holdings and the consolidation of
100% of Digital Healthcare Solutions, the latter having been an associate
company (39%) and thus equity accounted in the prior year. The aggregate impact
on revenues was approximately R240 million or 17% out of a total increase of
23%.
The market sectors in which the group operates continue to offer satisfactory
opportunities for growth for most of our solutions and products. However, the
pressure on margins remains relentless. Given these pressures coupled with the
firmness of the rand and inflation running at historically low levels, the
organic growth in revenue of 6% is considered reasonable. Increasing efficiency
levels continue to be the order of the day to remain competitive.
It is also gratifying to report that the integration of CS Holdings into our
group was achieved with relatively few issues although certain costs of a
non-recurring nature were incurred during the period under review.
RESULTS
Operating income improved by 35% from R95 million to R128 million. Net finance
charges increased from R8 million to R9 million due to a higher level of
borrowings associated predominantly with the acquisitions referred to below.
Headline earnings at 46,5 cents showed an improvement of 31% over the restated
earnings of 35,4 cents for the corresponding period of the prior year.
Attributable earnings at R73 million were R149 million higher than the
equivalent period in 2004, R130 million of which is due to the goodwill
impairment charge made in the previous year.
The obligatory inclusion of changes to accounting standards to ensure
compliance with IFRS has produced a negative effect on the results for the
period under review in respect of HEPS (4,7 cents) whilst the effect on the
previous year was considerably lower (1,4 cents). This is largely due to the
straight-lining effect of the re-signing of a long-term lease on the ex CS
Holdings headquarters in Midrand, which necessitated an additional charge to
headline earnings of approximately R4 million in the period under review.
The group moved from a net cash position of R63 million at February 2005 to a
net borrowing position of R171 million at August 2005. Acquisitions totaling
R143 million, the payment of a dividend of R55 million, increased tax payments
and a somewhat greater than expected increase in working capital were the main
contributors to this outflow.
It is confidently expected that a significant improvement in the group"s cash
position will be achieved by year end although the nature of the operations
taken over from CS Holdings will require slightly higher levels of working
capital than before.
OPERATIONS
Virtually all of the group"s operations performed at an improved level compared
with the previous year. In particular it is gratifying to report that the
anticipated contribution to profits from the businesses acquired from CS
Holdings was achieved and further improvements can be anticipated in the
second half.
The directors are also pleased to report that the United Kingdom operations of
the group have made significant progress and are once again contributing to the
group"s bottom line. It is anticipated that this progress will continue in the
second half.
ACQUISITIONS
During the period under review, the company acquired the outstanding 61%
shareholding which it did not already own in Digital Healthcare Solutions,
resulting in the latter becoming a wholly-owned subsidiary of the group. In
addition, BTG acquired the interest held by Altron in Technology Acceptances
Receivables, the vehicle which provides finance in respect of the IT offerings
of the operations within BTG. The acquisition of Nicor Outsource Processing, a
digital print bureau in KZN, was also concluded during this period. All these
acquisitions have contributed positively to the group"s results.
PROSPECTS
Given the increased market acceptance and recognition of the group resulting
from continuing improvements in financial performance, Bytes Technology Group
is favourably placed to take advantage of any opportunities that present
themselves, thereby ensuring adequate growth for the foreseeable future. Your
board is confident that, in line with previous years, second half headline
earnings will exceed those for the comparable period last year, resulting in a
satisfactory performance for the full year.
The above expected second half headline earnings have not been reviewed by BTG"s
auditors.
DIVIDEND
In keeping with the group"s policy of declaring a single dividend at the end of
the financial year, no dividend has been proposed at the interim stage.
It is envisaged that the dividend for the year will increase commensurately
with earnings.
ACKNOWLEDGEMENTS
Once again, it is gratifying to report that support from all our stakeholders
remains at a high level. The directors are particularly pleased by the seamless
integration of the staff who joined the group from CS Holdings.
Our customer support is especially appreciated and reciprocated.
Dr Bill Venter David Redshaw Peter Riskowitz
Chairman Chief Executive Officer Group Financial Director
4 October 2005
Directors: Dr WP Venter* (Chairman), PD Redshaw (Chief Executive), (British),
RJ Abraham, RJ Griggs (British), SM Pityana*, DC Radley*,
PR Riskowitz, HA Serebro*, RE Venter*, PL Wilmot* *Non-executive
Secretaries: BTG Management Services (Pty) Limited
(Group Secretary)
The interim financial results are also available on the internet at
www.btgroup.co.za
Date: 04/10/2005 04:05:37 PM Produced by the JSE SENS Department
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