| Tue 31 Jan 2006, 17:00 | | Dimension Data Holdings Plc - News Release - Inter |
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DDT
DIDDT
Dimension Data Holdings Plc - News Release - International Financial Reporting
Standards
DIMENSION DATA HOLDINGS PLC
(Dimension Data)
(Incorporated in the United Kingdom)
(Registration number 3704278)
Issuer code:DIDDT
JSE Share Code:DDT
ISIN Code: GB0008435405
NEWS RELEASE - INTERNATIONAL FINANCIAL REPORTING STANDARDS
Following a European Union Regulation issued in 2002, Dimension Data Holdings
Plc ("Dimension Data") is preparing for the adoption of International Financial
Reporting Standards ("IFRS") as its primary accounting basis for the year
ending 30 September 2006. Dimension Data previously reported under UK Generally
Accepted Accounting Practice ("UK GAAP"). The date of transition to these
standards will be 1 October 2004 and Dimension Data is today presenting its
restated unaudited income statement for the 12 months to 30 September 2005, and
its restated unaudited balance sheets at 1 October 2004 and 30 September 2005.
The conversion to IFRS will have no material impact on the reported trading
performance of the Group for the year ended 30 September 2005, other than in
respect of IFRS 2 Share-based Payment as previously advised.
The conversion to IFRS is also not expected to have a material impact on the
trading performance of the Group in the year ending 30 September 2006, other
than in respect of IFRS 2 and IFRS 3 Business Combinations (as goodwill is no
longer required to be amortised).
As advised in February 2005, accounting for the Group"s share-based payments
under IFRS 2 will result in a total charge to the 2005 income statement of
US$10.5 million (an adjustment of US$6.7 million compared to UK GAAP) and an
anticipated total charge to the income statement in 2006 of approximately
US$15 million. In addition, the Group does not expect any charges in 2006 in
respect of the BEE transaction now accounted for under IFRS 2.
The total adjustment to equity at 1 October 2004 (the transition date to IFRS)
will be a debit of US$13.8 million, largely as a result of a change in
accounting for venture capital investments (US$8.0 million) as well as the
capitalisation from inception of the Campus property lease (US$3.7 million).
There will be no material cash flow implications as a result of the adoption of
IFRS.
The total adjustments are summarised as follows (US$ million):
Dr/(Cr) Income statement
Balance sheet Adjustments to net
Adjustments to profit for the year
total equity ended 30 September Anticipated 2006
1 October 2004 2005 impact
1 Employee share incentive - 6.7 Total charge
* schemes approximately
US$15 million
BEE Transaction - - No charge under
IFRS
Total share-based payments - 6.7
(IFRS 2)
2 Other adjustments
* Venture capital investments 8.0 (1.1) No material
change to UK
GAAP
Capitalisation of Campus lease 3.7 1.8 No material
change to UK
GAAP
Provision for holiday pay 2.1 0.5 No material
change to UK
GAAP
Lease adjustments 0.2 1.1 No material
change to UK
GAAP
Goodwill amortisation - (3.3) No charge under
IFRS
Other (0.2) 0.1 No material
change to UK
GAAP
Total Other 13.8 (0.9)
In addition to the above changes, the Group expects some added volatility in
earnings as a result of accounting for financial instruments under IAS 39
Financial Instruments: Recognition and Measurement.
For further information:
Dimension Data Holdings Plc
Investor relations:
Karen Cramer +44 207 651 7017
Kevin Handelsman +27 11 575 3632
INTRODUCTION
Dimension Data Holdings Plc and its subsidiaries (together, "the Group") are
preparing for the adoption of International Financial Reporting Standards
("IFRS") as their primary accounting basis, following the adoption of
Regulation No. 1606/2002 by the European Parliament on 19 July 2002.
IFRS will apply for the first time in the Group"s Annual Financial Statements
for the year ending 30 September 2006. The Group"s financial results for the
six month period ending 31 March 2006 will be prepared under IFRS.
This press release explains how the Group"s accounts to be reported under IFRS
will differ from those previously reported under UK GAAP and includes:
the Group"s consolidated balance sheet at 1 October 2004, the date of
transition;
the Group"s consolidated balance sheet at 30 September 2005; and
the Group"s consolidated income statement for the 12 months ended
30 September 2005.
BASIS OF PREPARATION
The financial information presented in this document has been prepared on the
basis of International Financial Reporting Standards ("IFRS"), including
International Accounting Standards ("IAS") and interpretations issued by any
regulatory bodies which are applicable to the Group. These are subject to
ongoing amendment by the IASB and subsequent endorsement by the European
Commission and are therefore subject to possible change. The information
contained within this release will require updating for any subsequent
amendment to IFRS required for first time adoption or those new standards that
the Group may elect to adopt early.
1. IFRS 1 EXEMPTIONS
IFRS 1 First-time Adoption of International Financial Reporting Standards sets
out the procedures that the Group must follow when it adopts IFRS for the first
time as the basis for preparing its consolidated financial statements. The
Group is required to establish its IFRS accounting policies as at 30 September
2006 and, in general, apply these policies retrospectively to determine the
IFRS opening balance sheet at its date of transition, 1 October 2004.
IFRS 1 provides a number of optional exceptions to this general principle. The
most significant of these are set out below, together with a description in
each case of the exception adopted by the Group.
a) Business Combinations
The Group has elected not to apply IFRS 3 Business Combinations retrospectively
to past business combin ations that occurred before the date of transition (1
October 2004).
b) Cumulative translation difference
The Group has elected to reset the cumulative translation differences for all
foreign operations to zero at the date of transition to IFRS. The gain or loss
on a subsequent disposal of any foreign operation shall exclude translation
differences that arose before the date of transition to IFRS and shall include
later translation differences.
c) Share-based payments
The Group has elected not to apply IFRS 2 Share-based Payment retrospectively
to equity instruments granted on or before 7 November 2002.
d) Restating comparative information for financial instruments
The Group has taken advantage of the option not to apply IAS 32 Financial
Instruments: Disclosure and Presentation and IAS 39 Financial Instruments:
Recognition and Measurement to its comparative information. The Group will
instead apply these statements prospectively from 1 October 2005.
e) Leases
The Group has elected not apply IFRIC 4 Determining Whether an Arrangement
Contains a Lease retrospectively.
f) Fair value of property, plant and equipment
The Group has elected to continue to recognise all property, plant and
equipment ("PPE") at its historical UK GAAP carrying value on transition and
not to measure any item of PPE at fair value at 1 October 2004.
2. PRESENTATION OF FINANCIAL INFORMATION
The primary statements within the financial information contained in this
document have been presented substantially in accordance with IAS 1
Presentation of Financial Statements. However, this format and presentation may
require modification in the event that further guidance is issued.
3. KEY IMPACT ANALYSIS
a) Presentation of financial statements
The Group"s primary financial statements are presented substantially in
accordance with IAS 1. This impacts the presentation of the Group"s share of
the results of associate undertakings in the Group"s consolidated income
statement. Under UK GAAP, the Group"s share of associates" operating profit,
interest and tax were separately disclosed in the consolidated income
statement. In accordance with IAS 1, associates" results are presented as
a single line item.
b) Share-based Payment
Employee share incentive schemes
IFRS 2 requires that share-based instruments be expensed based on their fair
value at the date of grant. In the Group"s case this relates to grants since
7 November 2002 under the Share Option Schemes, the new Share Appreciation
Rights Scheme and Long Term Incentive Plan, both introduced in 2005, and the
Datacraft Asia share incentive scheme. The expense is recognised over the
vesting period of the schemes.
The Group has adopted a stochastic model, based on the standard "binomial"
options pricing model for the valuation of the grants under the Share Option
Schemes, the grants under the new Share Appreciation Rights Scheme and the
Datacraft Asia share incentive scheme. The value of the Long Term Incentive
Plan has been calculated using Monte Carlo simulation methods.
An amount of US$11.7 million was reallocated to reserves at the transition date.
An additional US$6.7 million (compared to UK GAAP) was charged to the 2005
income statement as a result of the adoption of IFRS 2.
Black Economic Empowerment ("BEE") Transaction
The BEE transaction entered into by the Group in April 2004 is an equity settled
transaction which is accounted for under IFRS 2. The fair value of the goods
and services received in terms of this transaction is still being determined by
the Group. The South African business, in which the BEE partners can receive a
maximum interest of 23.5% in addition to the 1.51% acquired at the start of the
transaction, was valued at approximately US$234 million and therefore the
maximum value that can be transferred under IFRS 2 from opening retained
income to other reserves is approximately US$55 million.
c) Venture Capital Investments
Under UK GAAP, the Group"s venture capital investments were stated at
valuation in terms of the standards endorsed by the British Venture Capital
Association. Investments were assessed annually for impairment and valuation
losses written off to operating profit, while no account was taken of valuation
surpluses. Where arm"s length transactions provided external validation of
valuations, surpluses and losses were included in operating profit.
Under IFRS, the following accounting policies now apply:
Investments over which the Group has the ability to exert control are
classified as subsidiaries and are consolidated (IAS 27 Consolidated and
Separate Financial Statements);
Investments, other than subsidiaries, over which the Group has the ability
to exercise significant influence, are classified as associates and are equity
accounted (IAS 28 Investments in Associates);
Investments which are not classified as subsidiaries or associates are
carried at cost less impairment. When IAS 39 is applied from 1 October 2005,
these investments will be carried at fair value.
An amount of US$8.0 million was charged to reserves at the transition date. Of
this, US$7.3 million is as a result of equity accounting entities which are
now classified as associates and US$0.7 million is as a result of
consolidating losses in an entity that is now classified as a subsidiary.
An amount of US$1.1 million was credited to the 2005 income statement under
IFRS. This is as a result of the deconsolidation in 2005 of losses of US$0.1
million in a subsidiary where the majority of the shareholding was sold and an
adjustment to equity accounted earnings mainly as a result of the reversal of
goodwill amortisation in associates of US$1.0 million.
d) Capitalisation of Campus Lease
Under IFRS, the Campus property lease in Johannesburg is classified as a
finance lease and capitalised from the inception date of the lease. The
adjustments resulting from the capitalisation are (stated in US$ million):
Dr/(Cr) Opening 2005 Income
Balance Sheet Statement Total
Reversal of operating lease (23.0) (1.8) (24.8)
expense
Financing expense 35.6 2.8 38.4
Depreciation expense 3.4 0.1 3.5
Adjustment to impairment 5.0 (16.1) (11.1)
expense
Adjustment to onerous (17.7) 17.4 (0.3)
lease provision
Interest on bare dominium 1.4 0.1 1.5
(freehold) acquired
Adjustment to leasehold (1.0) (0.7) (1.7)
improvement depreciation 3.7 1.8 5.5
The adjustments made to the 2005 income statement are impacted by the purchase
of the bare dominium (freehold) on 16 November 2004, which meant that the
accounting treatment of the Campus lease under UK GAAP changed from that of an
operating lease to a finance lease for the remainder of the 2005 financial
year. Had Dimension Data owned the bare dominium (freehold) for the full year,
there would have been no material adjustments to the 2005 income statement
relative to UK GAAP.
e) Holiday pay
As a result of guidance under IAS 19 Employee Benefits, and in order to accrue
fully for the holiday pay liability, an amount of US$2.1 million was charged to
reserves at transition date and US$0.5 million expensed in the 2005 income
statement.
f) Lease adjustments
In terms of IAS 17 Leases, a property lease has been capitalised and a
provision for refurbishment of a leased property has been raised. Both of these
adjustments occurred in Europe. This has resulted in an expense of US$0.2
million being charged against reserves at the transition date and US$1.1
million being expensed in the 2005 income statement.
g) Goodwill and intangible asset amortisation
IFRS 3 requires that goodwill is not amortised but is subject to an annual
impairment test. As the Group has elected not to apply IFRS 3 retrospectively
to business combinations prior to the opening balance sheet date, the UK GAAP
net goodwill balance at 1 October 2004 of US$1.0 million is no longer
amortised.
As a result of the adoption of IFRS 3, US$3.3 million of goodwill amortisation
was credited to the Group"s 2005 income statement. This goodwill amortisation
was mainly in respect of acquisitions completed during the 2005 financial year.
h) Reclassifications
Under UK GAAP, capitalised computer software was reflected as tangible fixed
assets. Under IFRS, only computer software that is integral to a related item
of hardware is reflected as such. All other computer software is classified
within intangible assets. At 1 October 2004 a reclassification amounting to
US$6.7 million has been made from property, plant and equipment to intangible
assets and at 30 September 2005 the reclassification amounted to US$9.4
million.
An amount of US$2.6 million was reclassified from goodwill to intangibles in
terms of IFRS 3 which requires intangible assets to be separately recognised in
respect of acquisitions made by the Group.
In 2004 an amount of US$ 10.9 million was reclassified from short term
investments to cash and cash equivalents and at 30 September 2005 the
reclassification amounted to US$12.5 million. These reclassifications are as a
result of the definition in IAS 7 Cash Flow Statements of cash and cash
equivalents being short-term, highly liquid investments that are readily
convertible to known amounts of cash and which are subject to an insignificant
risk of changes in value.
In 2005 an amount of US$3.0 million has been reclassified from current
liabilities to equity in respect of the share incentive costs charged to the
income statement under UK GAAP. As this relates to equity-settled share
incentive schemes, this credit is recorded in equity under IFRS.
i) Other
The net effect of other 2005 adjustments is a credit of US$0.9 million.
There was no material change to the current and deferred tax as a result of the
implementation of IAS 12 Income Taxes.
4. ANTICIPATED IMPLICATIONS OF IFRS IN 2006
Goodwill amortisation
Under IFRS 3 the Group will no longer be required to amortise goodwill but will
rather be required to subject goodwill to an annual impairment test.
Financial instruments
Accounting for and reporting of financial instruments is addressed under IAS 32
and IAS 39. The Group has elected to apply the exemption provided by IFRS 1 not
to apply these standards to comparative information. The main changes that will
result from the implementation on 1 October 2005 will be that under IAS 39,
open forward exchange contracts and embedded derivatives will be fair-valued at
reporting dates and movements accounted for through the income statement. As a
result, the Group expects some added volatility in earnings.
In terms of IAS 32, the US$ 100 million convertible bonds will be split between
debt and equity elements.
Share-based payments
The Group expects a 2006 income statement charge of approximately US$15 million
in respect of employee share incentive schemes.
The Group does not anticipate any material charges to the income statement in
2006 relating to the BEE transaction.
Other
The Group does not anticipate there being any other material adjustments to the
2006 results following the adoption of IFRS.
CONSOLIDATED BALANCE SHEET
At 1 October 2004
US$"000
ADJUSTMENTS
UK GAAP /
IFRS Venture
Format capital Capitali-
(Un- invest- sation of
audited) ments Campus
ASSETS
Non-current assets
Property, plant & equipment 92,467 15 114,295
Goodwill 976 361
Other intangible assets -
Investments in associates 25,781 7,027
Available for sale investments 39,013 (15,053)
Deferred tax assets 9,974
168,211 (7,650) 114,295
Current assets
Inventories 104,871
Trade and other receivables 537,231 153
Investments held for trading 10,946
Cash and cash equivalents 414,093 65
1,067,141 218 -
Total Assets 1,235,352 (7,432) 114,295
Provision
for holiday Lease Reclassifi-
pay adjustments cations
ASSETS
Non-current assets
Property, plant & equipment 1,451 (6,693)
Goodwill
Other intangible assets 6,693
Investments in associates
Available for sale investments
Deferred tax assets
- 1,451 -
Current assets
Inventories
Trade and other receivables (216)
Investments held for trading (10,946)
Cash and cash equivalents 10,946
- (216) -
Total Assets - 1,235 -
Total IFRS
Adjust- IFRS (Un-
Other ments audited)
ASSETS
Non-current assets
Property, plant & equipment 610 109,678 202,145
Goodwill (12) 349 1,325
Other intangible assets 6,693 6,693
Investments in associates 7,027 32,808
Available for sale investments (15,053) 23,960
Deferred tax assets 264 264 10,238
862 108,958 277,169
Current assets
Inventories - 104,871
Trade and other receivables (712) (775) 536,456
Investments held for trading (10,946) -
Cash and cash equivalents 11,011 425,104
(712) (710) 1,066,431
Total Assets 150 108,248 1,343,600
CONSOLIDATED BALANCE SHEET
At 1 October 2004
US$"000
ADJUSTMENTS
UK GAAP /
Venture
IFRS
Format capital Capitali-
(Un- invest- sation of
audited) ments Campus
EQUITY AND LIABILITIES
Capital and reserves 289,851 (8,031) (3,739)
Minority interest 104,377
394,228 (8,031) (3,739)
Non-current liabilities
Convertible loan note 100,906
Deferred tax liabilities 6,387
Other loans 28,098 395
Obligations under finance lease - 134,997
Provisions 35,488 (17,740)
170,879 395 117,257
Current liabilities
Trade and other payables 566,801 204 (3,745)
Current tax liabilities 98,926
Other current liabilities 4,146 4,522
Bank overdrafts and loans 372
670,245 204 777
Total liabilities 841,124 599 118,034
Total equity and liabilities 1,235,352 (7,432) 114,295
Provision
for holiday Lease Reclassifi-
pay adjustments cations
EQUITY AND LIABILITIES
Capital and reserves (2,116) (190)
Minority interest
(2,116) (190) -
Non-current liabilities
Convertible loan note
Deferred tax liabilities 85
Other loans
Obligations under finance lease 1,009
Provisions 208
- 1,302 -
Current liabilities
Trade and other payables 2,116
Current tax liabilities
Other current liabilities 123
Bank overdrafts and loans
2,116 123 -
Total liabilities 2,116 1,425 -
Total equity and liabilities - 1,235 -
Total IFRS
Adjust- IFRS (Un-
Other ments audited)
EQUITY AND LIABILITIES
Capital and reserves 327 (13,749) 276,102
Minority interest (151) (151) 104,226
176 (13,900) 380,328
Non-current liabilities
Convertible loan note 100,906
Deferred tax liabilities 85 6,472
Other loans 3 398 28,496
Obligations under finance lease 136,006 136,006
Provisions (17,532) 17,956
3 118,957 289,836
Current liabilities
Trade and other payables (29) (1,454) 565,347
Current tax liabilities 98,926
Other current liabilities 4,645 8,791
Bank overdrafts and loans 372
(29) 3,191 673,436
Total liabilities (26) 122,148 963,272
Total equity and liabilities 150 108,248 1,343,600
CONSOLIDATED INCOME STATEMENT
For the 12 months ended 30 September 2005
US$"000
ADJUSTMENTS
UK GAAP /
IFRS Venture
Format Share capital
(Un- based invest-
audited) payments ments
Revenue 2,727,857
Cost of Sales 2,171,872
Gross profit 555,985
Operating expenses 491,688 6,694 (5)
Operating profit 64,297 (6,694) 5
Share of profit of
associates 3,740 969
Investment income 2,542 80
Other gains and losses (1,027)
Finance costs (19,935)
Profit before tax 49,617 (6,694) 1,054
Income tax expense 20,545
Profit for the year 29,072 (6,694) 1,054
Capitali- Provision Lease
sation of for holiday adjust-
Campus pay ments
Revenue
Cost of Sales
Gross profit
Operating expenses (770) 534 1,000
Operating profit 770 (534) (1,000)
Share of profit of
associates
Investment income
Other gains and losses
Finance costs (2,589) (52)
Profit before tax (1,819) (534) (1,052)
Income tax expense 42
Profit for the year (1,819) (534) (1,094)
Total
Goodwill IFRS IFRS (Un-
amortisa- Adjust- audited)
tion Other ments
Revenue 2,727,857
Cost of Sales 2,171,872
Gross profit 555,985
Operating expenses (2,942) 80 4,591 496,279
Operating profit 2,942 (80) (4,591) 59,706
Share of profit of
associates 379 1,348 5,088
Investment income 80 2,622
Other gains and losses (1,027)
Finance costs (2,641) (22,576)
Profit before tax 3,321 (80) (5,804) 43,813
Income tax expense (11) 31 20,576
Profit for the year 3,321 (69) (5,835) 23,237
CONSOLIDATED BALANCE SHEET
At 30 September 2005
US$"000
ADJUSTMENTS
UK GAAP /
IFRS Venture
Format capital Capitali-
(Un- invest- sation of
audited) ments Campus
ASSETS
Non-current assets
Property, plant & equipment 225,167 (5,603)
Goodwill 43,076
Other intangible assets -
Investments in associates 26,897 6,180
Available for sale investments 35,935 (13,100)
Deferred tax assets 9,314
340,389 (6,920) (5,603)
Current assets
Inventories 104,258
Trade and other receivables 627,871
Investments held for trading 12,528
Cash and cash equivalents 404,068
1,148,725 - -
Total Assets 1,489,114 (6,920) (5,603)
Provision Lease Goodwill
for holiday adjust- amortisa-
pay ments tion
ASSETS
Non-current assets
Property, plant & equipment 1,235
Goodwill 2,973
Other intangible assets
Investments in associates 387
Available for sale investments
Deferred tax assets
- 1,235 3,360
Current assets
Inventories
Trade and other receivables (179)
Investments held for trading
Cash and cash equivalents
- (179) -
Total Assets - 1,056 3,360
Total
IFRS IFRS (Un-
Reclassi- Adjust- audited)
fications Other ments
ASSETS
Non-current assets
Property, plant & equipment (9,400) (137) (13,905) 211,262
Goodwill (2,630) 343 43,419
Other intangible assets 12,030 12,030 12,030
Investments in associates 6,567 33,464
Available for sale
investments (13,100) 22,835
Deferred tax assets 250 250 9,564
- 113 (7,815) 332,574
Current assets
Inventories 104,258
Trade and other receivables (179) 627,692
Investments held for trading (12,528) (12,528) -
Cash and cash equivalents 12,528 12,528 416,596
- - (179) 1,148,546
Total Assets - 113 (7,994) 1,481,120
CONSOLIDATED BALANCE SHEET
At 30 September 2005
US$"000
ADJUSTMENTS
UK GAAP /
IFRS Venture
Format capital Capitali-
(Un- invest- sation of
audited) ments Campus
EQUITY AND LIABILITIES
Capital and reserves 309,363 (6,920) (5,603)
Minority interest 105,054
414,417 (6,920) (5,603)
Non-current liabilities
Convertible loan note 101,385
Deferred tax liabilities 6,314
Other loans 28,168
Obligations under finance lease 142,805
Provisions 10,441
289,113 - -
Current liabilities
Trade and other payables 669,963
Current tax liabilities 96,057
Other current liabilities 13,526
Bank overdrafts and loans 6,038
785,584 - -
Total liabilities 1,074,697 - -
Total equity and liabilities 1,489,114 (6,920) (5,603)
Provision Lease Goodwill
for holiday adjust- amortisa-
pay ments tion
EQUITY AND LIABILITIES
Capital and reserves (2,618) (1,257) 3,360
Minority interest
(2,618) (1,257) 3,360
Non-current liabilities
Convertible loan note
Deferred tax liabilities 124
Other loans
Obligations under finance lease 864
Provisions 1,204
- 2,192 -
Current liabilities
Trade and other payables 2,618
Current tax liabilities
Other current liabilities 121
Bank overdrafts and loans
2,618 121 -
Total liabilities 2,618 2,313 -
Total equity and liabilities - 1,056 3,360
Total
IFRS IFRS (Un-
Reclassi- Adjust- audited)
fications Other ments
EQUITY AND LIABILITIES
Capital and reserves 3,057 128 (9,853) 299,510
Minority interest - 105,054
3,057 128 (9,853) 404,564
Non-current liabilities
Convertible loan note - 101,385
Deferred tax liabilities 124 6,438
Other loans 23 23 28,191
Obligations under finance
lease 864 143,669
Provisions 1,204 11,645
- 23 2,215 291,328
Current liabilities
Trade and other payables (3,057) (29) (468) 669,495
Current tax liabilities (9) (9) 96,048
Other current liabilities 121 13,647
Bank overdrafts and loans - 6,038
(3,057) (38) (356) 785,228
Total liabilities (3,057) (15) 1,859 1,076,556
Total equity and liabilities - 113 (7,994) 1,481,120
Date: 31/01/2006 05:00:17 PM Produced by the JSE SENS Department
