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BTG
BTG
Bytes Technology Group Limited - Reviewed Consolidated Financial Results For The
Year Ended 28 February 2006
BYTES TECHNOLOGY GROUP LIMITED
(Incorporated in the Republic of South Africa)(Registration number
1911/003874/06)
Share code: BTG & ISIN: ZAE000029526
("BTG" or "the company" or "the group")
REVENUE UP 19%
ADJUSTED HEADLINE EARNINGS PER SHARE UP 27%
STRONG CASH GENERATION FROM OPERATIONS
DIVIDEND UP 40%
OPERATING INCOME UP 28%
UK MOVES INTO PROFIT
REVIEWED CONSOLIDATED FINANCIAL RESULTS FOR THE YEAR ENDED 28
FEBRUARY 2006
Abridged income statements
2006 2005
% (IFRS) (IFRS Restated)
Figures in R million increase (Reviewed) (Reviewed)
Revenue 19 3,470 2,906
Operating income before
goodwill adjustment
and impairment 28 282 221
Net finance costs (15) (15)
Share of profits from
associates - 8
Goodwill adjustment(Note 1) (38) (4)
Goodwill impairment - (176)
Profit before taxation 229 34
Taxation (48) (72)
Profit/(loss) for the year 181 (38)
Attributable to:
Equity holders of BTG 173 (45)
Minority interest 8 7
Weighted average number
of shares in issue (million) 163.6 155.3
Earnings/(loss)
per share - basic (cents) 105.7 (29.8)
Earnings/(loss)
per share - diluted (cents) 82.6 (44.9)
Dividend per share paid (cents) 32.0 22.0
Dividend per share declared
in respect of that year (cents) 40 45.0 32.0
Notes:
1.Deferred tax assets have
been raised at
year-end on income
tax losses and temporary
differences in certain
of the former
CS Computer Services Holdings
operations.
Consequently a further
adjustment to goodwill has
been made as these
operations have
made taxable profits which
have not been taxed, due to the
utilisation of assessed losses.
Goodwill approximating the
taxation which would
have been recognised has now
been expensed in the
income statement.
2. Headline earnings
Attributable profit/(loss) is
reconciled to headline
earnings as
follows:
Attributable to equity holders to BTG 173 (45)
Goodwill adjustment 38 4
Goodwill impairment - 176
Portion of goodwill adjustment
attributable to minority interest (2) -
Headline earnings 209 135
Headline earnings
per share - basic (cents) 127.7 86.4
Headline earnings
per share - diluted (cents) 99.0 63.7
3. Adjusted headline earnings
Adjusted headline earnings has been
used as a more accurate measure
of the sustainable earnings of the
group. Headline earnings are reconciled
to adjusted headline earnings, as follows:
Headline earnings 209 135
Deferred tax assets raised (32) -
Portion of deferred tax assets
raised attributable to
minority interest 2 -
Adjusted headline earnings 33 179 135
Adjusted headline earnings
per share - basic (cents) 109.4 86.4
Adjusted headline earnings
per share - diluted (cents) 85.4 63.7
4. Diluted earnings
Diluted earnings, diluted headline
earnings and diluted adjusted headline
earnings have been calculated
on the basis that Kagiso Strategic Investments
(Pty) Ltd exercised its full option
on 22% of the shares in Bytes Technology
Group South Africa (Pty) Ltd
effective 1 March 2005.
Profit/(loss) attributable to
equity holders of BTG is reconciled
to diluted earnings/(loss) as follows:
Profit/(loss) attributable
to equity holders of BTG 173 (45)
Additional 22% minority interest (33) (29)
Diluted earnings/(loss) 140 (74)
Headline earnings are reconciled
to diluted headline earnings as follows:
Headline earnings 209 135
Additional 22% minority interest (41) (30)
Diluted headline earnings 168 105
Adjusted headline earnings are
reconciled to diluted adjusted headline
earnings as follows:
Adjusted headline earnings 179 135
Additional 22% minority interest (34) (30)
Diluted adjusted headline earnings 145 105
Reconciliation between the
number of shares used for earnings per share
and diluted earnings per share:
Weighted average number
of shares in issue (million) 163.6 155.3
Unexercised employee share options 5.8 10.0
Number of shares used
to calculate dilution 169.4 165.3
5. The consolidated financial results have been prepared in accordance
with International Financial Reporting Standards (IFRS) and its
interpretations adopted by the International Accounting Standards
Board (IASB). The financial statements for the year ended 28 February
2006 are the group"s first consolidated IFRS-compliant financial
statements and hence IFRS 1 First-time Adoption, has been applied.
The financial information of comparative periods have been restated
in accordance with IFRS as set out in the supplementary notes.
Abridged balance sheets
2006 2005
(IFRS) (IFRS Restated)
Figures in R million (Reviewed) (Reviewed)
ASSETS
Non-current assets 715 548
Property and equipment 118 107
Goodwill 374 338
Intangible assets 38 18
Investments and loans 53 23
Finance lease assets 68 24
Deferred taxation 64 38
Current assets 964 929
Inventories 164 139
Short-term loans receivable 27 31
Accounts receivable 585 467
Cash and cash equivalents 188 292
Total assets 1,679 1,477
EQUITY AND LIABILITIES
Total equity 604 470
Non-current liabilities 16 217
Finance lease liabilities 68 24
Current liabilities 991 766
Short-term loans payable 32 43
Accounts payable 825 681
Taxation 44 41
Bank overdraft 90 1
Total equity and liabilities 1,679 1,477
Shares in issue at end
of year (million) 165.0 161.8
Net asset value per share (cents) 365.1 290.3
Net tangible asset value
per share (cents) 115.8 70.5
Abridged cash flow statements
2006 2005
(IFRS) (IFRS Restated)
Figures in R million (Reviewed) (Reviewed)
Operating activities
Cash retained from operating activities 185 285
Cash generated by operations 329 286
Cash flow from investments 25 6
(Increase)/decrease in working capital (4) 94
Cash generated by operating activities 350 386
Interest paid (40) (21)
Taxation paid (70) (46)
Cash available from operating
activities 240 319
Dividend paid (55) (34)
Investing activities (227) (69)
Financing activities (151) (7)
(Decrease)/increase in net
cash and cash equivalents (193) 209
Net cash and cash equivalents
at beginning of year 291 82
Net cash and cash equivalents
at end of year 98 291
Cash and cash equivalents 188 292
Bank overdraft (90) (1)
Net cash and cash equivalents
at end of year 98 291
Abridged segmental analysis
2006 2005
(IFRS) (IFRS Restated)
Figures in R million (Reviewed) (Reviewed)
BUSINESS SEGMENTS
Revenue
ICT Infrastructure and Services 1,520 1,261
Software, Consulting
and Document Services 1,189 1,167
Specialised Equipment and Services 823 649
3,532 3,077
Consolidation eliminations (62) (56)
Total all operations 3,470 3,021
Less: Share of profits of associates* - (115)
3,470 2,906
Operating income before
goodwill adjustment and impairment
ICT Infrastructure and Services 72 46
Software, Consulting
and Document Services 115 107
Specialised Equipment and Services 120 95
307 248
Corporate and Other (25) (17)
Total all operations 282 231
Less: Share of profits of associates* - (10)
282 221
GEOGRAPHICAL SEGMENTS
Revenue
South Africa 2,817 2,402
International 717 670
Consolidation elimination (64) (51)
Total all operations 3,470 3,021
Operating income before
goodwill adjustment and impairment
South Africa 256 221
International 26 10
Total all operations 282 231
*Includes 100% of revenue from
associates and our proportionate
share of their operating profit.
All comparative numbers have
been restated for IFRS.
Supplementary information
2006 2005
(IFRS) (IFRS Restated)
Figures in R million (Reviewed) (Reviewed)
Depreciation and amortisation 51 40
Foreign exchange losses 3 1
Capital expenditure 65 98
Capital commitments - 11
Operating lease commitments - net 305 283
Payable within the next 12 months:
- property 38 53
- equipment and vehicles 15 19
Payable thereafter:
- property 250 199
- equipment and vehicles 11 18
Less: Related straight-lined lease accrual 9 6
Reconciliation of net funds
2006 2005
(IFRS) (IFRS Restated)
Figures in R million (Reviewed) (Reviewed)
Non-current liabilities (16) (217)
Finance lease liabilities (68) (24)
Short-term loans payable (32) (43)
Total debt per balance sheet (116) (284)
Less: Related finance lease assets 95 55
Total debt (21) (229)
Cash and cash equivalents 188 292
Bank overdraft (90) (1)
Total net funds 77 62
Abridged statements of changes in equity
Attributable to equity holders of BTG
Deferred
Share Reserves hedging Accumulated
Figures in R million capital reserve deficit
Balance at 29 February
2004 - IFRS restated 652 88 (3) (278)
Issue of share capital 51
Loss for the year (45)
Dividend paid (34)
Disposal of interest in
subsidiary to minority
Foreign currency
translation reserve (1)
Share-based payments 1
Transfer to
accumulated deficit (68) 68
Gains on cash
flow hedges after tax 2
Balance at 28
February 2005
- IFRS restated 703 20 (1) (289)
Profit for the year 173
Foreign currency
translation reserve (3)
Dividend paid (55)
Issue of share capital 13
Share-based payments 2
Losses on cash flow
hedges after tax (4)
Balance at 28
February 2006 (reviewed) 716 19 (5) (171)
Premium on
minority
equity Minority Total
Figures in R million transactions Total interest equity
Balance at 29 February
2004 - IFRS restated - 459 2 461
Issue of share capital 51 51
Loss for the year (45) 7 (38)
Dividend paid (34) (34)
Disposal of interest in
subsidiary to minority 27 27 1 28
Foreign currency
translation reserve (1) (1)
Share-based payments 1 1
Transfer to
accumulated deficit - -
Gains on cash
flow hedges after tax 2 2
Balance at 28
February 2005
- IFRS restated 27 460 10 470
Profit for the year 173 8 181
Foreign currency
translation reserve (3) (3)
Dividend paid (55) (55)
Issue of share capital 13 13
Share-based payments 2 2
Losses on cash flow
hedges after tax (4) (4)
Balance at 28
February 2006 (reviewed) 27 586 18 604
Supplementary notes to the adoption of IFRS
Basis of preparation
The group has adopted IFRS for the year ended 28 February 2006.
Accounting policies adopted under IFRS have been applied consistently in
preparing the financial statements for the year ended 28 February 2006, the
comparative information for the year ended 28 February 2005 and the opening
balance sheet on 1 March 2004.
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 and other adjustments:
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 difference between
the cost of the acquisition and the fair value of the net identifiable assets
and contingent liabilities 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 at 1 March 2004 at the amount previously recorded under
South African Generally Accepted Accounting Practice ("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.
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 gains 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 were acquired by the group were
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
annually 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 5 years
Distribution rights Indefinite life
Previously distribution rights were included with goodwill and not separately
identified on the balance sheet. The amortisation charged to the income
statement was part of the goodwill amortisation charged 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 employees are required to provide services in order to receive
these 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. Straight-lining 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 South African financial reporting. 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 IAS 8 with the necessary restatement of comparative
figures.
Reconciliation of equity
GROUP 28 February 1 March
Figures in R million References 2005 2004
Equity previously reported
under SA GAAP - Audited 406 467
Impact of adopting IFRS
and other adjustments 64 (6)
Equity reported under IFRS 470 461
Equity adjustments
Retained earnings:
Reversal of
goodwill amortisation 1 74 -
Reversal of gain on
disposal of subsidiary
interests to minority 2 (27) -
Amortisation of
intangible assets 3 (4)
Expensing of
share-based payments 4 (1) -
Straight-line expense
correction to operating leases 5 (6) (6)
Share-based payments reserve 4 1 -
Gain on disposal of subsidiary
interests to minority 2 27 -
64 (6)
Assets and
liabilities adjustments
Goodwill 1 53 -
Intangible assets 3 17 -
Accounts payable 5 (6) (6)
64 (6)
Reconciliation of profit
for the year ended
28 February 2005
As reported
GROUP previously Effect of IFRS
Figures in R million References (Audited) IFRS Restated
Operating income
before goodwill
adjustment,
impairment and
capital items 3, 4 and 5 226 (5) 221
Net finance costs (15) - (15)
Share of profits
from associates 8 - 8
Goodwill adjustment - (4) (4)
Goodwill
amortisation
and impairment 1 and 3 (254) 78 (176)
Capital items 2 27 (27) -
(Loss)/profit
before taxation (8) 42 34
Taxation (72) - (72)
Loss for the year (80) 42 (38)
Attributable to:
Equity holders of BTG (87) 42 (45)
Minority interest 7 - 7
Commentary
OVERVIEW
Your directors are pleased to report on a further year of improved performance
by the group. It is gratifying to note that the economic environment in the
year under review was one of the most benign for many years. Against this
backdrop the group increased its headline earnings per share (including the
raising of deferred tax assets) by 48% to 127.7 cents (86.4 cents). However,
adjusted headline earnings per share (which excludes deferred tax) increased by
27% to 109.4 cents (86.4 cents). Cash generation improved significantly during
the second half of the year with the result that the group returned to a net
funds position of over R70 million by year end (R62 million) notwithstanding
expenditure on acquisitions of around R150 million, an increased dividend
payment of R55 million (R34 million) and additional working capital
requirements occasioned by an increase in revenue of over R500 million.
Of particular satisfaction to your board has been the substantial recovery in
the fortunes of our United Kingdom operations. As a result of this improvement,
operating profits increased to R18 million compared with a break even position
in the previous year. Reference is made later in this review to our plans in
the United Kingdom.
FINANCIAL RESULTS
The group"s results incorporate changes to accounting standards necessitated by
the need to comply with IFRS. Comparative figures for the prior year have, as
more fully set out in this announcement, been restated accordingly.
Revenues, impacted by the consolidation of Digital Healthcare Solutions (equity
accounted in the prior year) and the inclusion of the operations acquired from
CS Holdings (CSH) for a full 12 months, grew by over 19%. Organic growth of 10%
was achieved, representing a significant real increase in business volumes in a
market where decreasing selling prices are the norm.
Operating income rose by 28% to R282 million (R221 million) with the operating
margin improving to 8.1% from 7.7% a year ago. Net financing costs remained
static at R15 million notwithstanding the cash outflows referred to earlier.
Headline earnings increased by 55% to R209 million (R135 million).
However excluding the effect of raising deferred tax assets, adjusted headline
earnings - a far more representative figure of sustainable earnings - rose by
33% to R179 million (R135 million).
OPERATIONAL PROGRESS
Our South African operations had a satisfactory year with operating income
increasing by 16% to R256 million (R221 million). Particularly good
performances were achieved by our Systems Integration, Managed Services,
Specialised Solutions and Digital Healthcare Solutions operations, each of
which increased their market share. Our Xerox operation, Bytes Document
Solutions, as anticipated after an excellent performance in the previous year,
maintained its profit levels in a competitive market. Notwithstanding this, its
unit sales increased in excess of 25%, boding well for future years" annuity
income in the form of consumables and maintenance revenues. Lower prices due to
technology changes and exchange rates continue to impact top line revenues
which nevertheless increased by approximately 10%.
As reported earlier, our United Kingdom operations had a much improved year
with the result that our international operations in aggregate improved
operating income by some R16 million to R26 million.
It is also pleasing to report that the integration of the CSH businesses was
successfully completed and this has had a favourable impact on the group both
in terms of financial and human resources.
Three of CSH"s former executives are now part of the BTG executive team.
ACQUISITIONS
BTG"s strategy remains one of considered growth both organically and by
acquisition. In South Africa, further consolidations in the IT industry are
inevitable and your group is well positioned to take advantage of
opportunities, locally and abroad, as they develop.
More specifically, we have made it clear that we intend to expand our
international operations in a meaningful way over the next few years in a
careful and progressive manner. To this end, we have since the end of the
financial year, finalised the purchase of a Xerox trading partner to the south
of London and are actively involved in discussions with further similar
businesses in the United Kingdom. It is our intention, in close co-operation
with Xerox United Kingdom, to become their largest partner in that territory.
Further opportunities are also currently under consideration.
The strong ongoing cash generation capabilities of our group will enable us to
pursue appropriate acquisition opportunities whilst ensuring that our dividend
policy is maintained.
BLACK ECONOMIC EMPOWERMENT AND TRANSFORMATION
Kagiso, which holds a 27% interest in BTG"s South African operations, is
actively involved with the management of our businesses.
The group has made considerable strides in transformation during the year under
review and follows a board approved and monitored transformation policy. Among
other things we have to date adopted three schools in underprivileged
communities and have developed and equipped multi-media centres that directly
affect the lives of over 5 000 black students. We are pleased to report that
the Financial Mail, in conjunction with Empowerdex, has rated BTG as 10th
overall of the top 200 JSE Limited listed companies and 4th in the ICT
sector, in terms of overall BBBEE and transformation.
PROSPECTS
Your group has firmly established itself as one of the foremost IT groups in
South Africa both financially and from a reliability and consistency point of
view. Your board is confident that the year ahead will be one of continuing
progress with concomitant profit growth. Our mission remains to balance
long-term growth ambitions with ongoing returns to shareholders, fully
justifying their confidence in the group.
We look forward to meeting our stakeholder"s expectations.
ACKNOWLEDGEMENTS
The board wishes to acknowledge with gratitude the contribution made by all our
stakeholders to the group"s progress over the past financial year. In
particular, we recognise the role played by our black economic empowerment
partners, Kagiso, whose advice and support have been unstintingly provided. To
all of our customers, staff and business partners we remain indebted for their
confidence and backing.
DIVIDENDS
Your board has consistently maintained that the payment of dividends to
shareholders is an inherent part of providing shareholder value.
It remains the policy to increase dividends in line with increases in earnings
(based on adjusted headline earnings). However, given that the impact of IFRS
on the group"s profits is largely of a non cash flow nature, the board has
resolved to reduce dividend cover.
Accordingly, the directors are pleased to declare a dividend of 45 cents per
ordinary share. This represents an increase of 40% over that of the previous
year.
In accordance with STRATE"s settlement procedures, the following
dates will apply to the dividend:
2006
Last date to trade ordinary shares "cum" dividend Friday 12 May
Ordinary shares trade "ex" dividend Monday 15 May
Record date Friday 19 May
Payment date Monday 22 May
Dividend cheques in payment of this dividend to certificated shareholders will
be posted to shareholders on the payment date. Electronic payment to
certificated shareholders will be undertaken simultaneously.
Shareholders who have dematerialised their share certificates will have their
accounts at their CSDP or broker credited on Monday 22 May 2006.
In the case of certificated shareholders, notice of any change of address of
shareholders must reach the transfer secretaries, Computershare Investor
Services 2004 (Pty) Limited, on or before Friday 12 May 2006.
Share certificates may not be dematerialised and/or rematerialised between
Monday, 15 May 2006 and Friday 19 May 2006, both days inclusive.
REVIEW BY INDEPENDENT AUDITORS
The group"s auditors, KPMG Inc, have reviewed these year-end results.
Their unqualified review report is available for inspection at the company"s
registered office during normal office hours.
ANNUAL REPORT
The Annual Report and financial statements for the year ended 28
February 2006 will be posted to shareholders on or about 31 May 2006.
On behalf of the Board
Dr Bill Venter David Redshaw
Peter Riskowitz
Chairman Chief Executive Officer
Group Financial Director
24 April 2006
Directors: Dr WP Venter* (Chairman), PD Redshaw (Chief Executive),
(British), RJ Abraham, RJ Griggs (British), SM Pityana*, DC Radley*,
PR Riskowitz, Dr HA Serebro*, RE Venter*,
PL Wilmot* *Non-executive
Company Secretary: BTG Management Services (Pty) Limited
BYTES TECHNOLOGY GROUP LIMITED
IT Services for the people
The financial results are also available on the internet at www.btgroup.co.za
Date: 24/04/2006 05:03:10 PM Produced by the JSE SENS Department
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