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DDT
DIDDT
Dimension Data - Unaudited Interim Results Six months ended 31 March 2006
Dimension Data Holdings Plc
("Dimension Data")
(Incorporated in the United Kingdom)
(Registration number 3704278)
Issuer code: DIDDT
JSE Share Code: DDT
ISIN Code: GB0008435405
Unaudited Interim Results Six months ended 31 March 2006
Dimension Data Holdings plc ("Dimension Data" or the "Group") today announced
its results for the six months ended 31 March 2006. The results have been
prepared for the first time in accordance with International Financial
Reporting Standards.
Features of First Half Results
- Turnover grew strongly by 15.9% to $1.5 billion
- Gross profit increased by 10.3% to $299.0 million
- Group overheads ratio to turnover improved to 18.0% (H1 2005: 19.4%)
- Operating profit increased by 33.3% to $37.4 million (H1 2005: $28.1
million)
- Operating margin improved to 2.6% (H1 2005: 2.2%)
Financial Summary
6 months to 6 months to
31 March 31 March
2006 2005
$"000 $"000
Turnover 1,450,110 1,250,788
Operating profit 37,426 28,067
Adjusted operating profit (1) 38,393 25,664
Profit attributable to equity shareholders 27,865 7,549
Adjusted profit attributable to equity
shareholders (1) 12,730 5,729
Basic earnings per ordinary share 1.9 0.6
Adjusted earnings per ordinary share (1) 0.9 0.4
Overview of Results (2)
The Group is pleased to report good progress in the first half of FY 2006, with
strong turnover growth on H1 2005 of 15.9% and substantially improved returns.
We continue to see good demand in the market segments in which the Group
operates. Our core Network Integration business, which still accounts for more
than half of our turnover, grew by a very pleasing 12.2%, and our Solutions
lines of business, on the whole, generated good growth. We continue to see
excellent expansion in Product turnover and solid growth in Services turnover.
Good double digit growth was achieved in four of the five regions in which the
Group operates, while Europe continues to perform below our expectations.
Gross margin was 20.6% (3), 1.1% lower than for H1 2005, although slightly
higher than H2 2005"s 20.5%. The decrease on H1 2005 was mainly the result of
exceptional growth in high volume multinational sales, at lower margins, and
disappointing margins in Europe.
Overheads were well contained, growing at 7.6%. As a result, the ratio of
overheads to turnover improved from 19.4% in H1 2005 to the current level of
18.0%.
The trading results therefore reflect a substantial increase of 49.6% in
adjusted operating profit (1) to $38.4 million, with the Group"s adjusted
operating margin (1) increasing to 2.6% from 2.1% in the prior period.
The Group"s cash generated investment income of $5.7 million for the half,
while finance costs of $19.0 million were largely in respect of the Group"s
property finance lease and convertible bonds.
As a result of the improved performance of the South African business and the
fact that Internet Solutions is now a wholly- owned subsidiary, the Group
raised a deferred tax asset of $19.5 million during the period. Accordingly,
our income statement reflects a net tax credit of $9.0 million. Before this
benefit, the Group"s tax charge was $10.5 million, representing a pleasing
improvement in the effective tax rate to 36.5% from 44.6% in the prior period.
The Group concluded two significant acquisitions during the period, acquiring
the remaining stakes in Internet Solutions and Plessey. Full ownership of
Internet Solutions provides opportunities to benefit from the deregulation of
the South African telecommunications market and through Plessey, a leading
African supplier of telecommunications solutions, the Group"s footprint across
the African continent is further established. In addition, our Black Economic
Empowerment partners vested a further 1.7% economic interest in the South
African business based on its 2005 financial results.
Subsequent to the period end, R&V Technology Holdings Limited, previously a
subsidiary of VenFin Limited, elected to convert its convertible bonds into
188.1 million Dimension Data ordinary shares, representing an effective 12.2%
of the expanded share capital of the Group.
Regional $"000"s
Africa Asia Australia
Six months
ended
31 March 2006
Turnover 300,203 237,702 285,951
Product 78,047 153,139 223,084
Services 222,156 84,563 62,867
Operating 30,904 11,994 6,930
profit (1)
Six months
ended
31 March 2005
Turnover 237,705 212,517 251,954
Product 78,401 134,879 192,027
Services 159,304 77,638 59,927
Operating 23,227 6,749 6,219
profit (1)
Europe USA Central Total
Six months
ended
31 March 2006
Turnover 356,072 268,039 2,143 1,450,110
Product 202,353 215,240 2,042 873,905
Services 153,719 52,799 101 576,205
Operating 88 5,218 (16,741) 38,393
profit (1)
Six months
ended
31 March 2005
Turnover 360,420 186,830 1,362 1,250,788
Product 207,924 144,956 1,307 759,494
Services 152,496 41,874 55 491,294
Operating 8,666 2,322 (21,519) 25,664
profit (1)
Turnover $"000"s
Six months Six months
ended 31 March
ended 31 March
2006 2005
Lines of business
Network Integration 745,765 664,576
Solutions 430,044 383,988
Other 274,301 202,224
Total 1,450,110 1,250,788
Revenue Stream
Product 873,905 759,494
Managed Services 349,862 333,203
Professional Services 226,343 158,091
Total 1,450,110 1,250,788
Change on H1
2005 like for like
Change on H1
2005 (4)
Lines of business
Network Integration 12.2% 17.1%
Solutions 12.0% 17.3%
Other 35.6% 15.0%
Total 15.9% 16.8%
Revenue Stream
Product 15.1% 19.6%
Managed Services 5.0% 10.4%
Professional Services 43.2% 16.6%
Total 15.9% 16.8%
Revenue growth rates (4)
Africa Asia Australia Europe USA Total
Six months ended 31 March 2006 compared to H1 2005
Total 9.1% 11.9% 19.3% 8.3% 43.4% 16.8%
Product 0.4% 13.5% 22.1% 6.9% 48.4% 19.6%
Services 13.3% 8.9% 10.3% 10.1% 26.0% 12.4%
In the `Review of Trading" section below, all references to percentage change
in turnover and gross profit, as well as changes in gross profit margins, are
after adjusting for the impact of currency movements, and excluding the impact
of acquisitions not included in either the full current period or the full
prior period. The acquisition having the most significant effect is Plessey.
All changes are relative to H1 2005.
Review of Trading
Group turnover increased strongly by 16.8%. Network Integration, comprising
51.4% of Group turnover for the period, was pleasing, growing by 17.1%, well
supported by growth in the USA (55.5%) and Australia (31.8%). In the USA in
particular, we benefited from increased traction on the West Coast, strong
services growth and robust demand from our larger, multinational accounts.
In the Group"s Solutions lines of business, Converged Communications and
Security continued to deliver very good growth, up 23.9% and 27.9%
respectively. Growth of 15.5% in our CIS (Customer Interactive Services) line
of business was constrained by a poor performance from our managed call centre
business in the UK and Ireland (Merchants). The OE&M (Operating Environments
and Messaging) business, where turnover grew by 10.9%, is still relatively
small and we believe that our continued investment in this area provides the
Group with significant opportunities for growth. While DCS (Datacentres and
Storage) only grew by 4.6%, second quarter increases in order rates in the USA
and Australia provide encouragement for the second half.
In the Group"s non-global (`Other") lines of business, Internet Solutions in
South Africa grew by 15.3% and Express Data (the Australian distribution
business) by a pleasing 15.0%. Plessey was included for the first time in the
current period.
Product turnover grew by 19.6%. Growth from the USA and Australia was
outstanding (48.4% and 22.1% respectively); Asia was solid at 13.5% while lower
growth rates were reported in Europe and Africa (6.9% and flat respectively).
Africa"s product turnover was impacted by lower volumes in OE&M and CIS, while
Converged Communications and Security continued to perform. Overall, growth was
assisted by demand in multinational accounts. Our global footprint, backed by
our procurement, logistics, installation and support capabilities continues to
differentiate us in the market.
Services turnover increased by 12.4%. In the USA, exceptional growth of 26.0%
was supported by demand from our clients for out-tasked Professional Services.
Africa reported a solid 13.3% growth, while growth in Asia, Australia and
Europe was 8.9%, 10.3% and 10.1% respectively.
Managed Services turnover grew by 10.4%, with solid growth in Africa (supported
by Internet Solutions), in Asia and in the USA.
Professional Services turnover increased by 16.6% with all regions reporting
double digit growth.
Gross profit grew by 11.3% and gross margin reduced from 21.6% to 20.6%. The
decrease in margin was the result of higher Product turnover growth (at lower
margins than Services), a changed sales mix (particularly in the USA) in favour
of higher volume multinational sales, at lower margins, as well as
disappointing gross margins in Europe. Geographically, Asia and Africa reported
pleasing increases in gross margins (to 18.4% and 32.0% from 17.0% and 30.9%
respectively) driven by strengthening in both Product and Services margins. The
margin in the USA decreased from 17.1% to 15.6%, largely as a result of the
change in mix. Australia"s gross margin declined as a result of Express Data"s
increased contribution and a change in the product mix in the Network
Integration business. Europe"s reduction in gross margin to 18.5% reflected
weaker Product and Services margins.
Total overheads increased by 8.0% to $252.5 million, well below the growth in
both turnover and gross profit. Overheads includes an IFRS 2 expense in respect
of the Group"s share incentive schemes of $5.8 million (H1 2005 $3.9 million).
The Group continues to examine ways to contain costs in the regions and at the
Centre and thus extract the benefits of operating leverage in its business
model.
At the operating profit level, Africa, Asia and the USA reported excellent
growth to $27.9 million, $12.0 million and $5.2 million respectively and
Australia grew to $6.9 million.
Europe was a disappointment, with an operating profit of $0.1 million compared
to $8.0 million in H1 2005. Of this amount, Merchants in the UK and Ireland had
a very poor half, with operating losses of $2.1 million compared to an
operating profit of $0.2 million in H1 2005.
The remainder of the European business recorded an operating profit of $2.2
million for the half compared to an operating profit of $7.8 million in H1
2005, and $4.4 million in H2 2005. During the period, management of the UK and
Continental European businesses was combined, and we have started to see the
benefits of this in improved performances in Germany, Spain and Italy. However,
these improvements were masked by continued difficulties in the region,
particularly in France, and a weak trading performance in the UK in the first
quarter.
The net Central cost of $17.6 million was much improved on the $21.1 million in
H1 2005. This is the result of ongoing efforts to manage the central Group
expenditure, as well as a good contribution from the Group"s central trading
operations.
Overall, operating profit (1) growth was very pleasing, up 44.5% at $34.5
million compared to $23.9 million in 2005.
Exceptional Items
The Group incurred three exceptional items during the period, as outlined in
Note 5 to the interim financial statements:
First, as a result of the improved performance of the South African business,
as well as the acquisition and subsequent divisionalisation of Internet
Solutions, the Group recognised a $19.5 million deferred tax asset in the South
African business.
Second, in 2002 and 2003 certain provisions were made relating to the
non-recoverability of certain receivables in China.
Following submission of claims to its insurers, the Group received a $5.2
million payment under its insurance policies for the losses previously
suffered.
Third, in 2005 we recorded a write down of long outstanding work in progress
and receivables in respect of our Cabling business in the UK, reported as a
division of Network Integration. While further investigations into these
balances are ongoing, we have increased the provision against these assets by
$6.1 million.
Share of Profit of Associates
The contribution from associates decreased to $2.1 million as a result of the
acquisition of 51% of Plessey making it a wholly- owned subsidiary. The most
significant remaining associate in the current period was Paracon, which is
listed on the JSE Securities Exchange and specialises in IT resourcing and
business solutions.
Investment Income, Other Gains and Losses and Finance Costs
Investment revenues of $5.7 million reflect interest earned on the Group"s cash
holdings. At 31 March 2006 total cash and cash equivalents were $346.9 million.
Finance costs were $19.0 million. These include $12.3 million in respect of the
capitalised property finance lease in South Africa, $2.0 million on bank loans,
and a net cost of $1.4 million on revaluation of forward exchange contracts at
period end. Also included is an interest cost of $1.7 million on the Group"s
$100 million convertible bonds. The bondholder served notice on 13 April 2006
to convert these bonds to shares, and in accordance with the convertible bond
agreements, no interest accrued beyond the last interest payment date of 31
December 2005.
Taxation
The Group"s tax charge, excluding the exceptional benefit of $19.5 million in
respect of the raising of a deferred tax asset in South Africa (discussed
above), was $10.5 million, representing an improvement in the effective tax
rate to 36.5% from 44.6% in the prior period.
Balance Sheet
Total current assets, before cash and cash equivalents, were $906.1 million (30
September 2005: $732.0 million). Total current liabilities were $878.6 million
compared (30 September 2005: $769.6 million). Growth in these balances reflects
seasonal changes in the working capital position of the Group, the effect of
acquisitions during the period, as well as increased receivables days
outstanding in a few territories.
Total cash and cash equivalents were $346.9 million at 31 March 2006
(30 September 2005: $416.6 million).
Non-current liabilities were $311.8 million (30 September 2005: $307.2
million). This included a $156.2 million property finance lease, $96.9 million
of convertible bonds, $37.8 million of other bank loans and overdrafts.
Subsequent to the period end, the holder of the convertible bonds elected to
convert the bonds to 188.1 million new shares in Dimension Data. These shares
will be issued as soon as all regulatory formalities have been completed.
Basis of Accounting
The Group has adopted International Financial Reporting Standards as its
primary accounting basis for its financial year ended 30 September 2006, and in
the preparation of its interim results. As anticipated, there were no material
changes to the reported results for the half over what would have been the case
under UK GAAP, other than in respect of the accounting for IFRS 2 Share based
payment (an expense of $5.8 million) and in respect of IAS 39 (a net expense of
$1.4 million).
In the current period, the Group elected to account for its role in certain
transactions as that of agent rather than principal. This had the effect of
decreasing turnover and cost of sales by $45.9 million in 2006 and $46.2
million in 2005. This was 3.0% and 3.1% of turnover in each period
respectively, and accordingly had no material impact on the calculation of
turnover growth. There was no impact on gross profit, although the change did
result in a 0.6% increase in the reported gross margin percentage in each
period.
Exchange Rates
The following table reflects the average and period end exchange rates against
the US Dollar for SA Rand, Australian Dollar, Sterling and Euro:
Exchange rates
Six months ended 31 Six months ended 31
March 2006 March 2005
Period Period
Average end Average end
Australian Dollar 1.360 1.397 1.294 1.294
Euro 0.834 0.822 0.759 0.772
South African Rand 6.330 6.190 5.981 6.329
Sterling 0.573 0.573 0.530 0.532
Year ended 30
September 2005
Period
Average end
Australian Dollar 1.312 1.313
Euro 0.815 0.831
South African Rand 6.515 6.390
Sterling 0.556 0.568
NOTES:
(1) Excluding exceptional items (see Note 5).
(2) Unless otherwise indicated, comparisons are to the equivalent prior period
being the six months ended 31 March 2005. All references to $ are to US$;
H1 2005 refers to the six months ended 31 March 2005; H1 2006 refers to
the six months ended 31 March 2006.
(3) See note under "Basis of Accounting" regarding a change in the treatment
of turnover in respect of certain categories of transaction.
(4) After adjusting for the impact of currency movements, and excluding
acquisitions and disposals not fully accounted for in either the current
period or the comparable period.
CONSOLIDATED INCOME STATEMENT
for the six months ended 31 March 2006
Restated Restated
Six months to Six months to Year ended
31 March 31 March 30 September
2006 2005 2005
Notes $"000 $"000 $"000
Revenue 3 1,450,110 1,250,788 2,638,876
Cost of sales (1,151,104) (979,701) (2,082,890)
Gross profit 299,006 271,087 555,986
Administrative,
selling and
distribution
expenses (261,580) (243,020) (496,319)
Operating profit 37,426 28,067 59,667
Share of profit
of associates 2,121 3,034 5,088
Investment income 5,683 7,440 2,622
Other gains and
losses 2,659 2,400 (1,027)
Finance costs (18,995) (18,154) (22,576)
Profit before tax 28,894 22,787 43,774
Income tax
income/(expense) 6 8,959 (10,160) (20,576)
Profit for the
period 37,853 12,627 23,198
Attributable to:
- Equity
shareholders of
the parent 27,865 7,549 11,890
- Minority
shareholders 9,988 5,078 11,308
37,853 12,627 23,198
Earnings per
ordinary share:
US Cents US Cents US Cents
- Basic 7 1.9 0.6 0.9
- Diluted 7 1.8 0.6 0.9
CONSOLIDATED BALANCE SHEET
as at 31 March 2006
31 March 31 March 30 September
2006 2005 2005
Notes $"000 $"000 $"000
Non-current assets
Property, plant and
equipment 227,134 210,134 211,534
Goodwill 83,531 6,279 43,424
Other intangible assets 11,925 6,806 10,306
Investments in associates 16,985 31,174 29,434
Investments held for
trading 994 24,501 21,811
Available for sale
investments 5,262 7,963 5,054
Deferred tax assets 35,495 12,212 9,314
381,326 299,069 330,877
Current assets
Inventories 131,832 109,037 104,258
Trade and other
receivables 8 774,314 590,890 627,769
Cash and cash equivalents 346,911 407,865 416,596
1,253,057 1,107,792 1,148,623
TOTAL ASSETS 1,634,383 1,406,861 1,479,500
Equity
Called up share capital 13,590 13,521 13,526
Share premium 104,991 101,732 101,823
Capital reserves 69,214 53,481 58,632
Other reserves 147,110 155,234 144,119
Retained
earnings/(accumulated
deficit) 4,474 (29,208) (20,948)
Capital and reserves 339,379 294,760 297,152
Minority interests 104,562 113,788 105,565
Total equity 443,941 408,548 402,717
Non-current liabilities
Convertible loan notes 96,885 102,537 105,405
Other loans 37,767 29,833 37,675
Obligations under
finance lease 156,154 141,495 143,875
Deferred tax liabilities 9,337 6,953 6,314
Provisions 11,677 15,956 13,929
311,820 296,774 307,198
Current liabilities
Trade and other payables 9 769,452 605,260 667,490
Taxation authorities
payables 91,853 95,549 96,057
Bank overdrafts and loans 17,317 730 6,038
878,622 701,539 769,585
Total liabilities 1,190,442 998,313 1,076,783
TOTAL EQUITY AND
LIABILITIES 1,634,383 1,406,861 1,479,500
CONSOLIDATED CASH FLOW STATEMENT
For the six months ended 31 March 2006
Six months to Six months to Year ended 30
31 March 2006 31 March 2005 September 2005
$"000 $"000 $"000
Cash flows from
operating activities
Profit for the period 37,853 12,627 23,198
Adjustments for:
Share of profit of
associates (2,121) (3,034) (5,088)
Other gains and losses (2,659) (2,400) 1,027
Investment income (5,683) (7,440) (2,622)
Finance costs 18,995 18,154 22,576
Income tax
(income)/expense (8,959) 10,160 20,576
Depreciation of
property, plant and
equipment 22,594 22,684 43,819
Loss/(profit) on
disposal of property,
plant and
equipment 438 (182) 395
Movement in provisions (1,144) (2,200) (1,063)
Share-based payment
expensed 5,756 4,081 10,778
Other non-cash items 3,080 (3,045) (1,729)
Operating cash flows
before movements in
working
capital 68,150 49,405 111,867
Increase in inventories (9,808) (4,142) (2,449)
Increase in trade and
other receivables (120,662) (55,992) (85,108)
Increase in trade and
other payables 52,767 31,762 86,578
Cash (utilised
in)/generated from
operations (9,553) 21,033 110,888
Income taxes paid (20,854) (10,350) (13,127)
Interest paid (17,089) (13,729) (24,993)
Net cash (used in)/from
operating activities (47,496) (3,046) 72,768
Cash flows from
investing activities
Interest received 7,523 7,085 13,909
Dividends received from
associates 1,031 1,460 2,597
Proceeds on disposal of
investments 21,969 349 839
Proceeds on disposal of
subsidiaries 314 2,151 2,468
Acquisition of property,
plant and equipment (33,407) (31,961) (59,709)
Proceeds on disposal of
property, plant and
equipment 81 921 312
Movement on investment
in associates 579 (707) 846
Acquisition/increase in
holdings of subsidiaries (55,837) (4,337) (43,636)
Net cash acquired with
subsidiary companies 18,380 492 1,210
Deferred consideration
paid (3,173) (32) (55)
Net cash used in
investing activities (42,540) (24,579) (81,219)
Cash flows from
financing activities
Repayment of borrowings (28,435) - -
New bank loans raised 36,732 - -
Dividends paid to
minorities - - (6,776)
Proceeds on issue of new
shares net of expenses 3,327 1,100 1,291
Net cash from/(used in)
financing activities 11,624 1,100 (5,485)
Net movement in cash and
cash equivalents (78,412) (26,525) (13,936)
Cash and cash
equivalents at beginning
of period 410,558 424,667 424,667
Exchange differences on
cash and cash
equivalents (2,552) 8,993 (173)
Cash and cash
equivalents at end of
period 329,594 407,135 410,558
Cash and cash
equivalents is made up
as follows:
Cash and cash equivalents 346,911 407,865 416,596
Bank overdrafts (17,317) (730) (6,038)
329,594 407,135 410,558
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Share Other ESOP
capital premium reserves* reserves
$"000 $"000 $"000 $"000
1 October 2004 13,499 100,748 146,382 (219)
Profit for the period
Share incentive scheme
Sale of ESOP shares 314
Currency adjustments 9,984
Shares issued 22 1,077
Share issue expenses (93)
Subsidiaries acquired/
changes in holdings
Transfers (1,132) (95)
31 March 2005 13,521 101,732 155,234 -
1 October 2004 13,499 100,748 146,382 (219)
Profit for the year
Share incentive scheme
Sale of ESOP shares 314
Currency adjustments (199)
Shares issued 27 1,264
Share issue expenses (189)
Subsidiaries acquired/
changes in holdings
Transfers (2,064) (95)
30 September 2005 13,526 101,823 144,119 -
Adoption of IAS32 &
IAS39 752
1 October 2005 13,526 101,823 144,871 -
Profit for the period
Share incentive scheme
Currency adjustments 2,042
Shares issued 64 3,262
Share issue expenses (94)
Subsidiaries acquired/
changes in holdings
Vesting under BEE
scheme
Net losses on cash flow
hedging (330)
Transfers 527
31 March 2006 13,590 104,991 147,110 -
Capital Retained Minority Total
reserves earnings interests equity
$"000 $"000 $"000 $"000
1 October 2004 49,367 (36,208) 104,737 378,306
Profit for the period 7,549 5,078 12,627
Share incentive scheme 4,114 4,114
Sale of ESOP shares 314
Currency adjustments (1,776) 8,208
Shares issued 1,099
Share issue expenses (93)
Subsidiaries acquired/
changes in holdings 3,973 3,973
Transfers 1,227 -
31 March 2005 53,481 (29,208) 113,788 408,548
1 October 2004 49,367 (36,208) 104,737 378,306
Profit for the year 11,890 11,308 23,198
Share incentive scheme 9,265 9,265
Sale of ESOP shares 314
Currency adjustments 1,211 180 1,192
Shares issued 1,291
Share issue expenses (189)
Subsidiaries acquired/
changes in holdings (10,660) (10,660)
Transfers 2,159 -
30 September 2005 58,632 (20,948) 105,565 402,717
Adoption of IAS32 &
IAS39 6,811 (1,899) 5,664
1 October 2005 65,443 (22,847) 105,565 408,381
Profit for the period 27,865 9,988 37,853
Share incentive scheme 5,324 5,324
Currency adjustments (150) (17) (118) 1,757
Shares issued 3,326
Share issue expenses (94)
Subsidiaries
acquired/changes in
holdings (12,276) (12,276)
Vesting under BEE
scheme (1,403) 1,403 -
Net losses on cash flow
hedging (330)
Transfers (527) -
31 March 2006 69,214 4,474 104,562 443,941
* Other reserves principally comprise consolidation reserves arising prior to
the unbundling of the underlying assets into the Company at the time of its LSE
listing in 2000.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS TO 31 MARCH 2006
1. BASIS OF PREPARATION
From 1 October 2005 Dimension Data Holdings Plc (`Dimension Data") is required
to prepare consolidated financial statements in accordance with International
Financial Reporting Standards (`IFRS") as endorsed by the European Commission
("EC"), following the adoption of Regulation No. 1606/2002 by the European
Parliament on 19 July 2002. Dimension Data previously prepared consolidated
financial statements in accordance with United Kingdom Generally Accepted
Accounting Practice (`UK GAAP"). The adjustments required to convert the UK
GAAP reported information into IFRS are set out in notes 14 to 16.
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 set out 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. The significant IFRS accounting policies are set out in note 2.
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 combinations 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 with one
exception, where the Group has elected to use the fair value of the item as
its deemed cost at the transition date.
The tax charge on underlying business performance is calculated by reference to
the estimated effective tax rate for the full year 2006. Tax on disposal and
exceptional items is based on the expected tax impact of each item.
The preparation of the interim financial statements in conformity with
generally accepted accounting principles requires the Directors to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at balance
sheet date, and the reported amounts of revenue and expenses during the
reported period. Whilst these estimates and assumptions are based on the
Directors" best knowledge of the amount, events or actions, actual results may
differ from those estimates.
The unaudited interim consolidated financial statements for the six months
ended 31 March 2006, which were approved by the Board of Directors on 9 May
2006 and which include certain comparative information with respect to the year
ended 30 September 2005, do not constitute statutory accounts within the
meaning of section 240 of the Companies Act 1985. Full accounts for the year
ended 30 September 2005, prepared in accordance with UK GAAP, incorporating an
unqualified independent auditors" report, have been filed with the Registrar of
Companies.
Copies of this report are being sent to shareholders, and are available to the
public at the Company"s registered office, Fleet Place House, 2 Fleet Place,
London EC4M 7RT.
2. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been used in preparation of the
interim consolidated financial statements. These include accounting policies
for financial instruments applied both before and after the adoption of IAS 32
and IAS 39.
The consolidated financial information has been prepared on the historical cost
basis, except for the revaluation of certain financial instruments. The
principal accounting policies adopted are set out below.
Basis of Consolidation
The consolidated financial statements incorporate the financial statements of
the Company and entities (including special purpose entities) controlled by the
Company (its subsidiaries). Control is achieved where the Company has the power
to govern the financial and operating policies of an investee enterprise so as
to obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the year are
included in the consolidated income statement from the effective date of
acquisition or up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring the accounting policies used into line with those used by
other members of the Group.
All intra-group transactions, balances, income and expenses are eliminated on
consolidation.
Minority interests in the net assets of consolidated subsidiaries are
identified separately from the Group"s equity therein. Minority interests
consist of the amount of those interests at the date of the original business
combination and the minority"s share of changes in equity since the
combination. Losses applicable to the minority in excess of the minority"s
interest in the subsidiary"s equity are allocated against the interest of the
Group except to the extent that the minority has a binding legal obligation and
is able to make additional investment to cover the losses.
Business Combinations
The acquisition of subsidiaries is accounted for using the purchase method. The
cost of the acquisition is measured at the aggregate of the fair values, at the
date of exchange, of assets given, liabilities incurred or assumed, and equity
instruments issued by the Group in exchange for control of the acquiree, plus
any costs directly attributable to the business combination.
On acquisition, the assets and liabilities and contingent liabilities of a
subsidiary are measured at their fair values at the date of acquisition, except
for non-current assets (or disposal groups) that are classified as held for
sale in accordance with IFRS 5 "Non-Current Assets Held for Sale and
Discontinued Operations", which are recognised and measured at fair value less
cost to sell.
Any excess of the cost of acquisition over the fair values of the identifiable
net assets acquired is recognised as goodwill. Any deficiency of the cost of
acquisition below the fair values of the identifiable net assets acquired (i.e.
discount on acquisition) is credited to the income statement in the period of
acquisition.
The interest of minority shareholders in the acquiree is initially measured at
the minority"s proportion of the net fair value of the assets, liabilities and
contingent liabilities recognised.
Interests in Associates
An associate is an entity over which the Group is in a position to exercise
significant influence, but not control, through participation in the financial
and operating policy decisions of the investee.
The results and assets and liabilities of associates are incorporated in these
financial statements using the equity method of accounting except when
classified as held for sale (see below). Investments in associates are carried
in the balance sheet at cost as adjusted by post-acquisition changes in the
Group"s share of the net assets of the associate, less any impairment in the
value of individual investments. Losses of the associate in excess of the
Group"s interest in those associates are not recognised.
Any excess of the cost of acquisition over the Group"s share of the fair values
of the identifiable assets, liabilities and contingent liabilities of the
associate at the date of acquisition is recognised as goodwill. Any deficiency
of the cost of acquisition below the Group"s share of the fair values of the
identifiable net assets of the associate at the date of acquisition (i.e.
discount on acquisition) is credited in the income statement in the period of
acquisition. The goodwill is included within the carrying amount of the
investment and is assessed for impairment as part of the investment.
Where a Group company transacts with an associate of the Group, profits and
losses are eliminated to the extent of the Group"s interest in the relevant
associate. Losses may provide evidence of an impairment of the asset
transferred in which case appropriate provision is made for impairment.
Non-current Assets Held for Sale
Non-current assets (and disposal groups) classified as held for sale are
measured at the lower of carrying amount and fair value less costs to sell.
Non-current assets and disposal groups are classified as held for sale if their
carrying amounts will be recovered through a sale transaction rather than
through continuing use. This condition is regarded as being met only when the
sale is highly probable and the asset (or disposal group) is available for
immediate sale in its present condition. Management must be committed to the
sale which should be expected to qualify for recognition as a completed sale
within one year from the date of classification.
Goodwill
Goodwill arising on consolidation represents the excess of the cost of
acquisition over the Group"s interest in the fair value of the identifiable
assets, liabilities and contingent liabilities of a subsidiary or associate at
the date of acquisition.
Goodwill is recognised as an asset at cost and is subsequently measured at
cost less any accumulated impairment losses.
For the purpose of impairment testing, goodwill is allocated to each of the
Group"s cash-generating units expected to benefit from the combination.
Cash-generating units to which goodwill has been allocated are tested for
impairment annually, or more frequently when there is an indication that the
unit may be impaired. If the recoverable amount of the cash-generating unit is
less than the carrying amount of the unit, the impairment loss is allocated
first to reduce the carrying amount of any goodwill allocated to the unit and
then to the other assets of the unit pro-rata on the basis of the carrying
amount of each asset in the unit. Any impairment is recognised immediately in
the income statement and is not subsequently reversed.
On disposal of a subsidiary or associate, the attributable amount of goodwill
is included in the determination of the profit or loss on disposal.
Goodwill arising on acquisitions before the date of transition to IFRS has been
retained at the previous UK GAAP amounts subject to being tested for impairment
at that date.
Revenue Recognition
Revenue is measured at the fair value of the consideration received or
receivable and represents amounts receivable for goods and services provided in
the normal course of business, net of discounts, VAT and other sales related
taxes.
Sales of goods are recognised when goods are delivered and title has passed.
Revenue from contracts is recognised in accordance with the Group"s accounting
policy on contracts (see below).
Maintenance revenue and licence fees are brought to account over the relevant
contract periods.
Where the Group acts as agent and is remunerated on a commission basis, the
commission is included in revenue. Where the Group acts as principal, the total
value of business handled is included in revenue.
Interest income is accrued on a time basis, by reference to the principal
outstanding and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the expected life
of the financial asset to that asset"s net carrying amount.
Dividend income from investments is recognised when the shareholders" rights
to receive payment have been established.
Contracts
Where the outcome of a contract can be estimated reliably, revenue and costs
are recognised by reference to the stage of completion of the contract activity
at the balance sheet date. This is normally measured by the proportion that
contract costs incurred for work performed to date bear to the estimated total
contract costs, except where this would not be representative of the stage of
completion. Variations in contract work, claims and incentive payments are
included to the extent that they have been agreed with the customer.
Where the outcome of a contract cannot be estimated reliably, contract revenue
is recognised to the extent of contract costs incurred that it is probable will
be recoverable. Contract costs are recognised as expenses in the period in
which they are incurred.
When it is probable that total contract costs will exceed total contract
revenue, the expected loss is recognised as an expense immediately.
Call centre revenue is recognised according to the stage of completion of the
contract by reference to the value of work performed. The amount by which
revenue differs from payments on account is shown under debtors as accrued
revenue, or under creditors as deferred revenue, as appropriate.
Leasing
Leases are classified as finance leases whenever the terms of the lease
transfer substantially all the risks and rewards of ownership to the lessee.
All other leases are classified as operating leases.
The Group As Lessor
Amounts due from lessees under finance leases are recorded as receivables at
the amount of the Group"s net investment in the leases. Finance lease income is
allocated to accounting periods so as to reflect a constant periodic rate of
return on the Group"s net investment outstanding in respect of the leases.
Rental income from operating leases is recognised on a straight line basis over
the term of the relevant lease. Initial direct costs incurred in negotiating
and arranging an operating lease are added to the carrying amount of the leased
asset and recognised on a straight line basis over the lease term.
The Group as Lessee
Assets held under finance leases are recognised as assets of the Group at their
fair value or, if lower, at the present value of the minimum lease payments,
each determined at the inception of the lease. The corresponding liability to
the lessor is included in the balance sheet as a finance lease obligation.
Lease payments are apportioned between finance charges and reduction of the
lease obligation so as to achieve a constant rate of interest on the remaining
balance of the liability. Finance charges are charged directly in the income
statement.
Rentals payable under operating leases are charged to income on a straight
line basis over the term of the relevant lease.
Benefits received and receivable as an incentive to enter into an operating
lease are also spread on a straight line basis over the lease term.
Foreign Currencies
The individual financial statements of each Group entity are presented in the
currency of primary economic environment in which the entity operates (its
functional currency). For the purpose of the consolidated financial statements,
the results and financial position of each entity are expressed in US Dollars,
which is the functional currency of the Company, and the presentation currency
for the consolidated financial statements.
Transactions in currencies other than the functional currency of the entities
are recorded at the rates of exchange prevailing on the dates of the
transactions. At each balance sheet date, monetary assets and liabilities that
are denominated in foreign currencies are retranslated at the rates prevailing
on the balance sheet date. Non-monetary assets and liabilities carried at fair
value that are denominated in foreign currencies are translated at the rates
prevailing at the date when the fair value was determined. Gains and losses
arising on retranslation are included in the income statement for the period,
except for exchange differences arising on non-monetary assets and liabilities
where the changes in fair value are recognised directly in equity.
In order to hedge its exposure to certain foreign exchange risks, the Group
enters into forward contracts and options (see below for details of the Group"s
accounting policies in respect of such derivative financial instruments).
For the purpose of presenting consolidated financial statements, the assets and
liabilities of the Group"s foreign operations are translated at exchange rates
prevailing on the balance sheet date. Income and expense items are translated
at the average exchange rates for the period, unless exchange rates fluctuate
significantly. Exchange differences arising, if any, are classified as equity
and transferred to the Group"s translation reserve. Such translation
differences are recognised as income or as expenses in the period in which the
operation is disposed of.
The financial statements of foreign subsidiaries and associates that report in
the currency of a hyperinflationary economy are restated in terms of the
measuring unit current at the balance sheet date before they are translated
into US Dollars.
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or
production of qualifying assets, which are assets that necessarily take a
substantial period of time to get ready for their intended use or sale, are
added to the cost of those assets, until such time as the assets are
substantially ready for their intended use or sale. Investment income earned on
the temporary investment in specific borrowings pending their expenditure on
qualifying assets is deducted from the borrowing costs eligible for
capitalisation.
All other borrowing costs are recognised in the income statement in the
period in which they are incurred.
Government Grants
Government grants towards staff re-training costs are recognised as income over
the periods necessary to match them with the related costs and are deducted in
reporting the related expense.
Government grants relating to property, plant and equipment are treated as
deferred income and released to the income statement over the expected useful
lives of the assets concerned.
Operating Profit
Profit from operations is stated after charging restructuring costs but before
the share of results of associates, investment income and finance costs.
Exceptional Items
`Exceptional items" are those items of financial performance that are material
and non-recurring in nature that the Group believes should be disclosed
separately within their consolidated income statement category to assist in the
understanding of the financial performance of the Group.
Retirement Benefit Costs
Payments to defined contribution retirement benefit plans are charged as an
expense as they fall due. Payments made to state- managed retirement benefit
schemes are dealt with as payments to defined contribution plans where the
Group"s obligations under the schemes are equivalent to those arising in a
defined contribution retirement benefit plan.
Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax.
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from net profit as reported in the income statement because it
excludes items of income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or deductible. The
Group"s liability for current tax is calculated using tax rates that have been
enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the balance sheet liability method.
Deferred tax liabilities are generally recognised for all taxable temporary
differences and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which deductible
temporary differences can be utilised. Such assets and liabilities are not
recognised if the temporary difference arises from goodwill or from the initial
recognition (other than in a business combination) of other assets and
liabilities in a transaction that affects neither the tax profit nor the
accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in subsidiaries and associates, and interests in joint
ventures, except where the Group is able to control the reversal of the
temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be
recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset realised. Deferred tax is
charged or credited in the income statement, except when it relates to items
charged or credited directly to equity, in which case the deferred tax is also
dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax liabilities
and when they relate to income taxes levied by the same taxation authority and
the Group intends to settle its current tax assets and liabilities on a net
basis.
Deferred tax assets and liabilities are not discounted.
Property, Plant and Equipment
Items of property, plant and equipment are carried at cost less accumulated
depreciation.
Depreciation is charged so as to write off the depreciable value of the assets
over their estimated useful lives, using the straight line method, on the
following basis:
Capitalised property finance lease 2% per annum
Leasehold land, buildings and improvements Over the lease term
Computer and workshop equipment 14%-33% per annum
Motor vehicles 25% per annum
Office furniture and equipment 10% per annum
Certain costs of purchase, development and installation of major information
systems (including packaged software) are capitalised and amortised over their
expected useful lives (generally three to five years) on a straight line basis.
Assets held under finance leases are depreciated over their expected useful
lives on the same basis as owned assets or, where shorter, the term of the
relevant lease.
The gain or loss arising on the disposal or retirement of an asset is
determined as the difference between the sales proceeds and the carrying amount
of the asset and is recognised in the income statement.
Internally-generated Intangible Assets - Research and Development
Expenditure
Expenditure on research activities is recognised as an expense in the period
in which it is incurred.
An internally-generated intangible asset arising from the Group"s Solutions
business is recognised only if all of the following conditions are met:
- an asset is created that can be identified (such as software and new
processes);
- it is probable that the asset created will generate future economic
benefits; and
- the development cost of the asset can be measured reliably.
Internally-generated intangible assets are amortised on a straight line basis
over their useful lives. Where no internally- generated intangible asset can be
recognised, development expenditure is recognised as an expense in the period
in which it is incurred.
Patents and Trademarks
Patents and trademarks are measured initially at purchase cost and are
amortised on a straight line basis over their estimated useful lives.
Impairment of Tangible and Intangible Assets Excluding Goodwill
At each balance sheet date, the Group reviews the carrying amounts of its
tangible and intangible assets to determine whether there is any indication
that those assets have suffered an impairment loss. If any such indication
exists, the recoverable amount of the asset is estimated in order to determine
the extent of the impairment loss (if any). Where the asset does not generate
cash flows that are independent from other assets, the Group estimates the
recoverable amount of the cash-generating unit to which the asset belongs. An
intangible asset with an indefinite useful life is tested for impairment
annually and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in
use. In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the
asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to
be less than its carrying amount, the carrying amount of the asset
(cash-generating unit) is reduced to its recoverable amount. An impairment loss
is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount of the
asset (cash-generating unit) is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does not exceed
the carrying amount that would have been determined had no impairment loss been
recognised for the asset (cash-generating unit) in prior years. A reversal of
an impairment loss is recognised as income immediately.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost
comprises direct materials and, where applicable, direct labour costs and those
overheads that have been incurred in bringing the inventories to their present
location and condition. Cost is calculated using the weighted average method.
Net realisable value represents the estimated selling price less all estimated
costs of completion and costs to be incurred in marketing, selling and
distribution.
Financial Instruments (UK GAAP accounting policies applicable up to 30
September 2005)
Derivative financial instruments
The Group uses derivative financial instruments to reduce exposure to foreign
exchange risk and interest rate movements. The Group does not hold or issue
derivative financial instruments for speculative purposes.
For a forward foreign exchange contract to be treated as a hedge, the
instrument must be related to actual foreign currency assets or liabilities or
to a probable commitment. It must involve the same currency or similar
currencies as the hedged item and must also reduce the risk of foreign currency
exchange movements on the Group"s operations. Gains and losses arising on these
contracts are deferred and recognised in the income statement, or as
adjustments to the carrying amount of assets, only when the hedged transaction
has itself been reflected in the Group"s financial statements.
For an interest rate swap to be treated as a hedge the instrument must be
related to actual assets or liabilities or a probable commitment and must
change the nature of the interest rate by converting a fixed rate to a variable
rate or vice versa. Interest differentials under these swaps are recognised by
adjusting net interest payable over the periods of the contracts.
If an instrument ceases to be accounted for as a hedge, for example because the
underlying hedged position is eliminated, the instrument is marked to market
and any resulting profit or loss recognised at that time.
Financial Instruments (IFRS accounting policies applicable from 1 October 2005)
Financial Instruments
Financial assets and financial liabilities are recognised in the Group"s
balance sheet when the Group becomes a party to the contractual provisions of
the instrument.
Trade receivables
Trade receivables are measured at initial recognition at fair value, and are
subsequently measured at amortised cost using the effective interest rate
method. Appropriate allowances for estimated irrecoverable amounts are
recognised in the income statement when there is evidence that the asset is
impaired. The allowance recognised is measured as the difference between the
asset"s carrying amount and the present value of estimated future cash flows
discounted at the effective interest rate computed at initial recognition.
Investments
Investments are recognised and derecognised on a trade date where a purchase or
sale of an investment is under a contract whose terms required delivery of the
investment within the timeframe established by the market concerned, and are
initially measured at cost, including transaction costs.
At subsequent reporting dates, debt securities that the Group has the expressed
intention and ability to hold to maturity (held-to- maturity debt securities)
are measured at amortised cost using the effective interest rate method, less
any impairment loss recognised to reflect irrecoverable amounts. An impairment
loss is recognised in the income statement when there is objective evidence
that the asset is impaired, and is measured as the difference between the
investment"s carrying amount and the present value of estimated future cash
flows discounted at the effective interest rate computed at initial
recognition. Impairment losses are reversed in subsequent periods when an
increase in the investment"s recoverable amount can be related objectively to
an event occurring after the impairment was recognised, subject to the
restriction that the carrying amount of the investment at the date the
impairment is reversed shall not exceed what the amortised cost would have been
had the impairment not been recognised.
Investments other than held-to-maturity debt securities are classified as
either investments held for trading or as available-for- sale, and are measured
at subsequent reporting dates at fair value. Where securities are held for
trading purposes, gains and losses arising from changes in fair value are
included in the income statement for the period. For available-for-sale
investments, gains and losses arising from changes in fair value are recognised
directly in equity, until the security is disposed of or is determined to be
impaired, at which time the cumulative gain or loss previously recognised in
equity is included in the income statement for the period. Impairment losses
recognised in the income statement for equity investments classified as
available- for-sale are not subsequently reversed through the income statement.
Impairment losses recognised in the income statement for debt instruments
classified as available-for-sale are subsequently reversed if an increase in
the fair value of the instrument can be objectively related to an event
occurring after the recognition of the impairment loss.
Investments in subsidiaries are carried in the parent Company balance sheet at
cost less provisions for impairments.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, and other
short term highly liquid investments that are readily convertible to a known
amount of cash and are subject to an insignificant risk of changes in value.
Financial liabilities and equities
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. An equity instrument is
any contract that evidences a residual interest in the assets of the Group
after deducting all of its liabilities.
Bank borrowings
Interest-bearing bank loans and overdrafts are initially measured at fair
value, and are subsequently measured at amortised cost, using the effective
interest rate method. Any difference between the proceeds (net of transaction
costs) and the settlement or redemption of borrowings is recognised over the
term of the borrowings in accordance with the Group"s accounting policy for
borrowing costs (see above).
Convertible loan notes
Convertible loan notes are regarded as compound instruments, consisting of a
liability component and an equity component. At the date of issue, the fair
value of the liability component is estimated using the prevailing market
interest rate for similar non- convertible debt. The difference between the
proceeds of issue of the convertible loan notes and the fair value assigned to
the liability component, representing the embedded option to convert the
liability into equity of the Group, is included in equity.
Issue costs are apportioned between the liability and equity components of the
convertible loan notes based on their relative carrying amounts at the date of
issue. The portion relating to the equity component is charged directly against
equity.
The interest expense on the liability component is calculated by applying the
prevailing market interest rate for similar non- convertible debt to the
liability component of the instrument. The difference between this amount and
the interest paid is added to the carrying amount of the convertible loan note.
On conversion of the instruments the value of the debt is transferred to
equity reserves.
Trade payables
Trade payables are initially measured at fair value, and are subsequently
measured at amortised cost, using the effective interest rate method.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds
received, net of direct issue costs.
Derivative financial instruments
The Group uses derivative financial instruments (primarily foreign currency
forward contracts) to hedge its risks associated with foreign currency
fluctuations relating to certain firm commitments and forecasted transactions.
Such derivatives are initially recorded at fair value, if any, and are
remeasured to fair value at subsequent reporting dates.
The Group does not use derivative financial instruments for speculative
purposes. The use of financial derivatives is governed by the Group"s policies
approved by the Board of Directors, which provide written principles on the use
of financial derivatives.
Changes in the fair value of derivative financial instruments that are
designated and effective as hedges of future cash flows are recognised directly
in equity and the ineffective portion is recognised immediately in the income
statement. If the cash flow hedge of a firm commitment or forecasted
transaction results in the recognition of an asset or a liability, then, at the
time the asset or liability is recognised, the associated gains or losses on
the derivative that had previously been recognised in equity are included in
the initial measurement of the asset or liability. For hedges that do not
result in the recognition of an asset or a liability, amounts deferred in
equity are recognised in the income statement in the same period in which the
hedged item affects the income statement.
Changes in the fair value of designated fair value hedges and derivative
financial instruments that do not qualify for hedge accounting are recognised
in the income statement as they arise.
Hedge accounting is discontinued when the hedging instrument expires or is
sold, terminated, or exercised, or no longer qualifies for hedge accounting. At
that time, any cumulative gain or loss on the hedging instrument recognised in
equity is retained in equity until the forecasted transaction occurs. If a
hedged transaction is no longer expected to occur, the net cumulative gain or
loss recognised in equity is transferred to net the income statement for the
period.
Derivatives embedded in other financial instruments or non-derivative host
contracts are treated as separate derivatives when their risks and
characteristics are not closely related to those of host contracts and the host
contracts are not carried at fair value with unrealised gains or losses
reported in the income statement.
Provisions
Provisions are recognised when the Group has a present legal or constructive
obligation, as a result of past events, for which it is probable that an
outflow of economic benefits will be required to settle the obligation, and a
reliable estimate can be made for the amount of the obligation. Where the
effect of discounting to present value is material, provisions are adjusted to
reflect the time value of money.
Provisions for warranty costs are recognised at the date of sale of the
relevant products, at the Directors" best estimate of the expenditure required
to settle the Group"s liability.
Provisions for restructuring costs are recognised when the Group has a detailed
formal plan for the restructuring that has been communicated to affected
parties.
Share-based Payment
The Group has applied the requirements of IFRS 2 `Share-based Payment". In
accordance with the transitional provisions, IFRS 2 has been applied to all
grants of equity instruments after 7 November 2002 that were unvested as of 1
January 2005.
The Group issues equity-settled share-based payments to certain employees.
Equity-settled share-based payments are measured at fair value at the date of
grant. The fair value determined at the grant date of the equity-settled
share-based payments is expensed on a straight line basis over the vesting
period, based on the Group"s estimate of the shares that will eventually vest.
Fair value is measured by use of a binomial model. The expected life used in
the model has been adjusted, based on management"s best estimate, for the
effects of non-transferability, exercise restrictions, and behavioural
considerations.
3. REVENUE RESTATEMENT
Previously the Group presented the amounts invoiced on the sale of software
product, the provision of maintenance contracts with back-to-back
arrangements with suppliers, and product sales limited to logistics, as
gross revenue in the income statement. As these types of arrangements
become an increasingly significant feature of the Group"s operating model,
it is now believed to be more appropriate to reflect the commission earned
on such transactions as the revenue and not the gross sales value.
Consequently, in the current period, the Group elected to account for
these transactions as an agent, rather than as a principal, and to report
the net rather than the gross revenue. The comparative reported revenue
figures were restated accordingly. This had the effect of decreasing
turnover and cost of sales by $45.9 million in H1 2006 and $46.2 million
in H1 2005. This change in accounting policy has had no impact on
reported profit.
4. SEGMENTAL ANALYSIS
Africa Asia Australia Europe**
$"000 $"000 $"000 $"000
Six months ended
31 March 2006
Turnover 300,203 237,702 285,951 356,072
Operating profit* 30,904 11,994 6,930 88
Six months ended
31 March 2005
Turnover 237,705 212,517 251,954 360,420
Operating profit* 23,227 6,749 6,219 8,666
Twelve months
ended 30
September 2005
Turnover 486,806 455,977 590,180 695,807
Operating profit* 45,210 15,185 17,296 14,583
United
States
Central Total
$"000 $"000 $"000
Six months ended
31 March 2006
Turnover 268,039 2,143 1,450,110
Operating profit* 5,218 (16,741) 38,393
Six months ended
31 March 2005
Turnover 186,830 1,362 1,250,788
Operating profit* 2,322 (21,519) 25,664
Twelve months
ended 30
September 2005
Turnover 405,126 4,980 2,638,876
Operating profit* 7,202 (40,635) 58,841
* Before exceptional items.
** From 1 October 2005, the United Kingdom and Continental Europe have been
managed as one region. The comparative information has been restated to
reflect this change.
5. EXCEPTIONAL INCOME/(COSTS)
Notes Six months Six months Year ended
ended 31 ended 31 30
March 2006 March 2005 September
2005
$"000 $"000 $"000
Exceptional operating
(costs)/income
Insurance claim proceeds a) 5,150 - -
Provision against work
in progress and
receivables b) (6,117) - (2,537)
Other - 2,403 3,363
Total exceptional
operating (costs)/income (967) 2,403 826
Other exceptional items
Loss on sale of fixed
assets and investments - (583) (1,027)
Goodwill and investment
impairment - associates - - (1,280)
- (583) (2,307)
Total exceptional items
before taxation and
equity
minority interests (967) 1,820 (1,481)
Deferred tax credit c) 19,499 - -
Exceptional items after
tax 18,532 1,820 (1,481)
Minorities" share of
exceptional items (3,397) - -
Net exceptional
income/(costs) 15,135 1,820 (1,481)
a) During the period, the Group received full and final settlement of $5.2
million from its insurers for loss previously suffered in relation to China
accounts receivable, provided for in full in FY 2003.
b) Provision against long outstanding work in progress and accounts receivable
balances in the cabling business in the UK.
c) As a result of the improved performance of the South African business, as
well as the acquisition and subsequent divisionalisation of Internet
Solutions, the Group recognised an additional $19.5 million deferred tax
asset in the South African business.
Reconciliation of Six months Six months Year ended
reported amounts to ended 31 ended 31 30
adjusted amounts March 2006 March 2005 September
2005
$"000 $"000 $"000
Reported operating profit 37,426 28,067 59,667
Exceptional
operating costs/(income) 967 (2,403) (826)
Adjusted operating profit 38,393 25,664 58,841
Reported attributable
profit after tax 27,865 7,549 11,890
- Exceptional
costs/(income) 967 (1,820) 1,481
- Deferred tax credit (19,499) - -
- Minorities share 3,397 - -
Adjusted attributable
profit after tax 12,730 5,729 13,371
6. INCOME TAX (INCOME)/EXPENSE
Six months Six months Year ended
ended 31 ended 31 30
March 2006 March 2005 September
2005
$"000 $"000 $"000
Current tax 11,256 10,361 18,446
Deferred tax - current period (156) 202 3,433
Deferred tax - prior periods* (20,059) (403) (1,303)
Total tax (income)/expense (8,959) 10,160 20,576
* Refer Note 5 - Exceptional items.
7. EARNINGS PER SHARE
Six months Six months Year ended
ended 31 ended 31 30
March 2006 March 2005 September
2005
`000 `000 `000
Weighted average number of
ordinary shares:
- for basic earnings per share* 1,441,491 1,342,991 1,343,895
- for diluted earnings per share 1,507,497 1,342,991 1,343,895
US Cents US Cents US Cents
Basic earnings per share 1.9 0.6 0.9
Diluted earnings per share 1.8 0.6 0.9
Adjusted basic earnings per share 0.9 0.4 1.0
$"000 $"000 $"000
Earnings for basic and diluted
earnings per share 27,865 7,549 11,890
Exceptional items (15,135) (1,820) 1,481
Adjusted earnings 12,730 5,729 13,371
* In terms of IAS 33 "Earnings per Share", the weighted average number of
shares has been adjusted for the Convertible Bond. A proportion of the
shares which will be issued on conversion has been included from
1 January 2006, the date on which interest ceased to accrue. This has
had the effect of increasing the weighted average number of shares by
94.1 million shares.
8. TRADE AND OTHER RECEIVABLES
Six months Six months Year ended
ended 31 ended 31 30
March 2006 March 2005 September
2005
$"000 $"000 $"000
Trade receivables 568,888 424,527 474,176
Other receivables 65,179 37,614 49,796
Prepayments and accrued income 98,764 110,369 86,740
Taxation authorities 41,483 18,380 17,057
774,314 590,890 627,769
9. TRADE AND OTHER PAYABLES
Six months Six months Year ended
ended 31 ended 31 30
March 2006 March 2005 September
2005
$"000 $"000 $"000
Trade payables 344,453 259,097 244,424
Other payables 120,099 94,185 108,655
Accruals 145,944 137,153 165,486
Deferred income 145,539 113,256 139,419
Deferred consideration 13,417 1,569 9,506
769,452 605,260 667,490
10. ACQUISITIONS
On 3 November 2005, Dimension Data South Africa acquired for $19.0 million in
cash the remaining 51% stake in Plessey, a project management and service
provider in the telecommunications market throughout the African continent,
thereby increasing the interest held to 100%.
The carrying amounts of each class of assets, liabilities and contingent
liabilities, determined in accordance with IFRS, immediately preceding the
business combination, were the same as the amounts recognised at the
acquisition date. The amounts are as follows:
$ million
Non-current assets 6
Inventory 17
Receivables 23
Cash at bank and in hand 17
Short-term creditors (34)
Provisions (1)
Due to the nature of the underlying business, there were no specific intangible
assets to which value could be assigned. Goodwill of $3.8 million arose on
this acquisition.
Since the acquisition date, the amount of Plessey"s revenue and profit after
tax included in the Group income statement was $42.5 million and $2.3 million,
respectively.
The initial accounting for the business combination has only been determined
provisionally as final fair values to be assigned to Plessey"s identifiable
assets, liabilities and contingent liabilities can be determined only
provisionally.
If the acquisition had occurred at the beginning of the period, the amount of
revenue and profit after tax that would have been included in the income
statement would have been $47.9 million and $2.2 million respectively.
In addition, with effect from 28 February 2006 Dimension Data South Africa
acquired the remaining 20% in Internet Solutions for a cash consideration of
$44.2 million. This entity was already accounted for as a subsidiary in the
prior periods. This acquisition gave rise to goodwill amounting to $31.6
million.
11. SHARE INCENTIVE COSTS
Following the adoption of IFRS 2, an amount of $5.8 million (H1 2005:
$3.9 million, FY 2005: $9.8 million) has been charged in the income statement
in the current period.
12. CESSION OF ASSETS AND LEASES
In terms of the Internet Solutions acquisition agreement, until such time as
the purchase price is settled in full, the Group has ceded the following to the
seller:
- All the shares held in Dimension Data (Pty) Ltd
- An intergroup loan account, the balance currently being $156.4 million.
The holding company has further given the seller a guarantee in respect of the
outstanding purchase price. The outstanding purchase price is $12.6 million.
Trade receivables of $83.6 million and bank balances amounting to $0.3 million
in the South African business have been ceded to a financial institution as
security for a working capital loan of $32.3 million.
As security for the construction of a new building at the Campus, the Group has
ceded the sub-lease agreements of $14.2 million to the banks who are funding
the construction.
In the US business an amount of $98.2 million of trade receivables and $7.2
million of inventory have been ceded as security in respect of a working
capital facility.
13. POST BALANCE-SHEET EVENT
Subsequent to 31 March 2006, the holder of the convertible bonds, R&V
Technology Holdings Ltd, previously a subsidiary of VenFin Ltd, elected to
convert its $100 million convertible bonds into 188,121,978 Dimension Data
ordinary shares. On conversion, the additional shares will amount to 12.2% of
the enlarged issued share capital of the Company. These shares will be issued
once all regulatory formalities have been completed.
In terms of the original agreement, on conversion, interest (including the
redemption premium) no longer accrues after the last payment date, being 31
December 2005.
On conversion of the instruments, the value of the debt will be transferred
to equity reserves.
14. RECONCILIATION OF CONSOLIDATED INCOME STATEMENT FROM UK GAAP TO IFRS
a) Six months to 31 March 2005
$"000 UK GAAP / Venture
(IFRS Share- capital Capitali-
Format) based invest- sation of
Restated payment ments Campus
Revenue 1,250,788
Cost of Sales (979,701)
Gross profit 271,087
Administrative,
selling
and distribution
expenses (243,694) (1,217) 730
Operating profit 27,393 (1,217) - 730
Share of profit of
associates 2,501 602
Investment income 7,440
Other gains and losses - 2,400
Finance costs (15,363) (2,674)
Profit before tax 21,971 (1,217) 3,002 (1,944)
Income tax expense (10,160)
Profit for the period 11,811 (1,217) 3,002 (1,944)
$"000 Provision
for holiday Lease Goodwill
pay adjust- amort-
ments isation Other IFRS
Revenue 1,250,788
Cost of Sales (979,701)
Gross profit 271,087
Administrative,
selling
and
distribution
expenses (564) 242 1,363 120 (243,020)
Operating
profit (564) 242 1,363 120 28,067
Share of
profit of
associates (69) 3,034
Investment
income 7,440
Other gains
and losses 2,400
Finance costs (117) (18,154)
Profit before
tax (564) 242 1,294 3 22,787
Income tax
expense (10,160)
Profit for the
period (564) 242 1,294 3 12,627
b) Year to 30 September 2005
$"000 UK GAAP / Share- Venture
(IFRS Format) based capital Capitali-
Restated payment invest- sation of
ments Campus
Revenue 2,638,876
Cost of Sales (2,082,890)
Gross profit 555,986
Administrative, selling
and distribution
expenses (491,689) (7,016) 312 770
Operating profit 64,297 (7,016) 312 770
Share of profit of
associates 3,740 969
Investment income 2,542 80
Other gains and losses (1,027)
Finance costs (19,935) (2,589)
Profit before tax 49,617 (7,016) 1,361 (1,819)
Income tax expense (20,545)
Profit for the year 29,072 (7,016) 1,361 (1,819)
$"000 Provision
for holiday Lease Goodwill
pay adjust- amort-
ments isation Other IFRS
Revenue 2,638,876
Cost of
Sales (2,082,890)
Gross
profit 555,986
Administrative,
selling
and
distribution
expenses (534) (917) 4,102 (1,347) (496,319)
Operating
profit (534) (917) 4,102 (1,347) 59,667
Share of
profit of
associates 379 5,088
Investment
income 2,622
Other
gains and
losses (1,027)
Finance
costs (52) (22,576)
Profit
before tax (534) (969) 4,481 (1,347) 43,774
Income tax
expense (42) 11 (20,576)
Profit for
the year (534) (1,011) 4,481 (1,336) 23,198
15. RECONCILIATION OF CONSOLIDATED BALANCE SHEET FROM UK GAAP TO IFRS
a) At 31 March 2005
$"000 Venture
UK GAAP / capital Capitali- Provision for
(IFRS investments sation of holiday
Format) Campus pay
ASSETS
Non-current
assets
Property, plant
& equipment 222,450 (5,759)
Goodwill 5,621
Other intangible
assets -
Investments in
associates 27,554 2,984
Investments held
for trading 24,501
Available for
sale investments 17,090 (9,127)
Deferred tax
assets 12,212
309,428 (6,143) (5,759) -
Current assets
Inventories 109,037
Trade and other
receivables 591,178
Investments held
for trading 11,022
Cash and cash
equivalents 397,030
1,108,267 - - -
Total Assets 1,417,695 (6,143) (5,759) -
EQUITY AND
LIABILITIES
Capital and
reserves 307,954 (6,143) (5,759) (2,680)
Minority interest 114,413
422,367 (6,143) (5,759) (2,680)
Non-current
liabilities
Convertible loan
notes 102,537
Other loans 28,440
Obligations
under finance
lease 140,501
Deferred tax
liabilities 7,381 (428)
Provisions 13,814
292,673 - - (428)
Current
liabilities
Trade and other
payables 606,603 3,108
Current tax
liabilities 95,549
Bank overdrafts
and loans 503
702,655 - - 3,108
Total liabilities 995,328 - - 2,680
Total equity and
liabilities 1,417,695 (6,143) (5,759) -
"000
Lease
adjustments Reclassifi-
cations Other IFRS
ASSETS
Non-current assets
Property, plant &
equipment 1,394 (6,806) (1,145) 210,134
Goodwill 658 6,279
Other intangible
assets 6,806 6,806
Investments in
associates 636 31,174
Investments held
for trading 24,501
Available for sale
investments 7,963
Deferred tax assets 12,212
1,394 - 149 299,069
Current assets
Inventories 109,037
Trade and other
receivables (216) 187 (259) 590,890
Investments held
for trading (11,022) -
Cash and cash
equivalents 10,835 407,865
(216) - (259) 1,107,792
Total Assets 1,178 - (110) 1,406,861
EQUITY AND
LIABILITIES
Capital and reserves 52 2,424 (1,088) 294,760
Minority interest (625) 113,788
52 2,424 (1,713) 408,548
Non-current
liabilities
Convertible loan
notes 102,537
Other loans 1,393 29,833
Obligations under
finance
lease 994 141,495
Deferred tax
liabilities 6,953
Provisions 2,142 15,956
994 - 3,535 296,774
Current liabilities
Trade and other
payables 132 (2,424) (2,159) 605,260
Current tax
liabilities 95,549
Bank overdrafts and
loans 227 730
132 (2,424) (1,932) 701,539
Total liabilities 1,126 (2,424) 1,603 998,313
Total equity and
liabilities 1,178 - (110) 1,406,861
b) At 1 October 2004
$"000 Venture
UK GAAP / capital Capitali- Provision for
(IFRS investments sation of holiday
Format) Campus pay
ASSETS
Non-current
assets
Property, plant
& equipment 92,467 15 114,295
Goodwill 976 361
Other intangible
assets -
Investments in
associates 25,781 3,008
Available for
sale investments 39,013 (11,034)
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 -
EQUITY AND
LIABILITIES
Capital and
reserves 289,851 (8,031) (3,739) (2,116)
Minority interest 104,377
394,228 (8,031) (3,739) (2,116)
Non-current
liabilities
Convertible loan
notes 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) 2,116
Current tax
liabilities 98,926
Other current
liabilities 4,146 4,522
Bank overdrafts
and loans 372
670,245 204 777 2,116
Total liabilities 841,124 599 118,034 2,116
Total equity and
liabilities 1,235,352 (7,432) 114,295 -
$"000
Lease
adjustments Reclassifi-
cations Other IFRS
ASSETS
Non-current assets
Property, plant &
equipment 1,451 (6,190) (1,156) 200,882
Goodwill (12) 1,325
Other intangible
assets 6,190 6,190
Investments in
associates 28,789
Available for sale
investments 27,979
Deferred tax assets 264 10,238
1,451 - (904) 275,403
Current assets
Inventories 104,871
Trade and other
receivables (216) (712) 536,456
Investments held for
trading (10,946) -
Cash and cash
equivalents 10,946 425,104
(216) - (712) 1,066,431
Total Assets 1,235 - (1,616) 1,341,834
EQUITY AND
LIABILITIES
Capital and reserves (190) (2,206) 273,569
Minority interest 360 104,737
(190) - (1,846) 378,306
Non-current
liabilities
Convertible loan
notes 100,906
Deferred tax
liabilities
85 6,472
Other loans 3 28,496
Obligations under
finance
lease 1,009 136,006
Provisions 208 256 18,212
1,302 - 259 290,092
Current liabilities
Trade and other
payables (29) 565,347
Current tax
liabilities 98,926
Other current
liabilities 123 8,791
Bank overdrafts and
loans 372
123 - (29) 673,436
Total liabilities 1,425 - 230 963,528
Total equity and
liabilities 1,235 - (1,616) 1,341,834
c) At 30 September 2005
$"000 Venture
UK GAAP / capital Capitali- Provision
(IFRS invest- sation of for holiday
Format ments Campus pay
ASSETS
Non-current assets
Property, plant &
equipment 225,167 (5,602)
Goodwill 43,076 146
Other intangible assets - 146
Investments in
associates 26,897 2,171
Investments held for
trading 21,811
Available for sale
investments 14,124 (9,070)
Deferred tax assets
9,314
340,389 (6,607) (5,602) -
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 (6,607) (5,602) -
EQUITY AND LIABILITIES
Capital and reserves 309,363 (6,607) (5,602) (2,643)
Minority interest 105,054
414,417 (6,607) (5,602) (2,643)
Non-current liabilities
Convertible loan notes 105,405
Other loans 37,675
Obligations under
finance lease 142,890
Deferred tax
liabilities
6,314
Provisions 12,192 614
304,476 - - 614
Current liabilities
Trade and other
payables 668,126 2,029
Current tax liabilities 96,057
Bank overdrafts and
loans 6,038
770,221 - - 2,029
Total liabilities 1,074,697 - - 2,643
Total equity and
liabilities 1,489,114 (6,607) (5,602) -
$"000
Lease Goodwill
adjust- amortis- Reclassi- IAS 16
ments ation fications and Other IFRS
ASSETS
Non-current
assets
Property,
plant &
equipment 1,475 (7,603) (1,903) 211,534
Goodwill 2,576 (1,270) (1,104) 43,424
Other
intangible
assets 8,873 1,287 10,306
Investments
in
associates 387 (21) 29,434
Investments
held for
trading 21,811
Available
for sale
investments 5,054
Deferred tax
assets
9,314
1,475 2,963 - (1,741) 330,877
Current
assets
Inventories 104,258
Trade and
other
receivables (179) 77 627,769
Investments
held for
trading (12,528) -
Cash and
cash
equivalents 12,528 416,596
(179) - - 77 1,148,623
Total Assets 1,296 2,963 - (1,664) 1,479,500
EQUITY AND
LIABILITIES
Capital and
reserves (921) 2,963 3,057 (2,458) 297,152
Minority
interest 511 105,565
(921) 2,963 3,057 (1,947) 402,717
Non-current
liabilities
Convertible
loan notes 105,405
Other loans 37,675
Obligations
under
finance
lease 985 143,875
Deferred tax
liabilities
6,314
Provisions 867 256 13,929
1,852 - - 256 307,198
Current
liabilities
Trade and
other
payables 365 (3,057) 27 667,490
Current tax
liabilities 96,057
Bank
overdrafts
and loans 6,038
365 - (3,057) 27 769,585
Total
liabilities 2,217 - (3,057) 283 1,076,783
Total equity
and
liabilities 1,296 2,963 - (1,664) 1,479,500
d) At 1 October 2005
$"000
IFRS as at
30 IFRS as at 1
September IAS 32 and October
2005 IAS 39 2005
ASSETS
Non-current assets
Property, plant & equipment 211,534 211,534
Goodwill 43,424 43,424
Other intangible assets 10,306 10,306
Investments in associates 29,434 29,434
Investments held for trading 21,811 21,811
Available for sale investments 5,054 5,054
Deferred tax assets 9,314 9,314
330,877 330,877
Current assets
Inventories 104,258 104,258
Trade and other receivables 627,769 1,175 628,944
Cash and cash equivalents 416,596 416,596
1,148,623 1,175 1,149,798
Total Assets 1,479,500 1,175 1,480,675
EQUITY AND LIABILITIES
Capital and reserves 297,152 5,664 302,816
Minority interest 105,565 105,565
402,717 5,664 408,381
Non-current liabilities
Convertible loan notes 105,405 (4,836) 100,569
Other loans 37,675 37,675
Obligations under finance 143,875 143,875
lease
Deferred tax liabilities 6,314 6,314
Provisions 13,929 13,929
307,198 (4,836) 302,362
Current liabilities
Trade and other payables 667,490 347 667,837
Current tax liabilities 96,057 96,057
Bank overdrafts and loans 6,038 6,038
769,585 347 769,932
Total liabilities 1,076,783 (4,489) 1,072,294
Total equity and liabilities 1,479,500 1,175 1,480,675
16. EXPLANATION OF IMPACT OF TRANSITION TO IFRS
An explanation of the impact of the material differences and resulting
adjustments between UK GAAP and IFRS as they apply to Dimension Data"s
consolidated income statement and balance sheet is set out below:
a) Presentation of financial statements
The Group"s primary financial statements are presented 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 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 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 $11.7 million was reallocated to reserves at the transition date.
An additional $7.0 million (compared to UK GAAP) was charged to the 2005 income
statement as a result of the adoption of IFRS 2. The balance sheet effects of
the IFRS 2 adjustment at the transition date has not been separately disclosed,
as the movements are within reserves.
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 was determined
by the Group as being $38.3 million and this value was transferred from opening
retained earnings to other reserves under IFRS 2.
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 was applied from 1 October
2005, these investments were carried at fair value.
An amount of $8.0 million was charged to reserves at the transition date. Of
this, $7.3 million is a result of equity accounting entities which are now
classified as associates and $0.7 million is a result of consolidating losses
in an entity that is now classified as a subsidiary. An amount of $1.4 million
was credited to the 2005 income statement under IFRS. This is mainly a result
of the deconsolidation in 2005 of losses of $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 $1.0 million.
d) Capitalisation of Campus Lease
Under IFRS, the Campus property lease in Johannesburg, South Africa is
classified as a finance lease and capitalised from the inception date of the
lease. The adjustments resulting from the capitalisation are (stated in $
million):
Dr/(Cr) Opening 2005 Income Statement
Balance Sheet Total
Reversal of operating
lease expense (23.0) (1.8) (24.8)
Financing expense 35.6 2.8 38.4
Depreciation expense 3.4 0.1 3.5
Adjustment to impairment
expense 5.0 (16.1) (11.1)
Adjustment to onerous
lease provision (17.7) 17.4 (0.3)
Interest on bare
dominium (freehold)
acquired 1.4 0.1 1.5
Adjustment to leasehold
improvement
depreciation (1.0) (0.7) (1.7)
3.7 1.8 5.5
The adjustments made to the 2005 income statement were 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 $2.1 million was
charged to reserves at transition date and $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 $0.2 million
being charged against reserves at the transition date and $1.0 million being
expensed in the 2005 income statement.
g) Goodwill and intangible asset amortisation
IFRS 3 `Business Combinations" 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 $1.0 million
is no longer amortised.
As a result of the adoption of IFRS 3, $4.5 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
$6.2 million has been made from property, plant and equipment to intangible
assets and at 30 September 2005 the reclassification amounted to $7.6 million.
An amount of $1.3 million was reclassified from goodwill to intangibles in
accordance with IFRS 3 which requires intangible assets to be separately
recognised in respect of acquisitions made by the Group.
In 2004 an amount of $10.9 million was reclassified from short term investments
to cash and cash equivalents and at 30 September 2005 the reclassification
amounted to $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 $3.1 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
This adjustment of $1.8 million has been applied to tangible fixed assets at
1 October 2004 and arises mainly as a result of Dimension Data"s decision to
apply the provision of IFRS 1 allowing an entity to elect to measure an item
of property, plant and equipment at the date of transition to IFRSs at its
fair value, and to use the fair value as its deemed cost at that date.
There was no material change to the current and deferred tax as a result of
the implementation of IAS 12 "Income Taxes".
INDEPENDENT REVIEW REPORT TO DIMENSION DATA HOLDINGS plc
Introduction
We have been instructed by the Company to review the financial information for
the six months ended 31 March 2006 which comprises the consolidated income
statement, the consolidated balance sheet, the consolidated cash flow
statement, the consolidated statement of changes in equity and related notes 1
to 16. We have read the other information contained in the interim report and
considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.
This report is made solely to the Company in accordance with Bulletin 1999/4
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the Company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the Company, for our review work, for this report, or for the conclusions
we have formed.
Directors" responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the Directors. The Directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures are consistent with
those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
International Financial Reporting Standards
As disclosed in note 1, the next annual financial statements of the Group will
be prepared in accordance with International Financial Reporting Standards as
adopted for use in the EU. Accordingly, the interim report has been prepared in
accordance with the recognition and measurement criteria of IFRS and the
disclosure requirements of the Listing Rules.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of Group management and
applying analytical procedures to the financial information and underlying
financial data and, based thereon, assessing whether the accounting policies
and presentation have been consistently applied unless otherwise disclosed. A
review excludes audit procedures such as tests of controls and verification of
assets, liabilities and transactions. It is substantially less in scope than an
audit performed in accordance with International Standards on Auditing (UK and
Ireland) and therefore provides a lower level of assurance than an audit.
Accordingly, we do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 31 March 2006
Deloitte & Touche LLP
Chartered Accountants
London
9 May 2006
Notes: A review does not provide assurance on the maintenance and integrity of
the website, including controls used to achieve this, and in particular on
whether any changes may have occurred to the financial information since first
published. These matters are the responsibility of the Directors but no control
procedures can provide absolute assurance in this area.
Legislation in the United Kingdom governing the preparation and dissemination
of financial information differs from legislation in other jurisdictions.
Enquiries:
Dimension Data Holdings plc
Jeremy Ord, Chairman
Brett Dawson, Chief Executive Officer
David Sherriffs, Chief Financial Officer
Karen Cramer, Investor Relations (UK)
Mobile: +(44) 793 202 0296
Office: +(44) 20 7651 7000
karen.cramer@uk.didata.com
Kevin Handelsman, Investor Relations (SA)
Office: +(27) 11 575 3632
Mobile: +(27) 82 453 9945
kevin.handelsman@za.didata.com
Internet address: www.dimensiondata.com
Press enquiries:
Katie Hine
18 Soho Square, London, W1D 3QL
Mobile: +(44) 797 644 9940
Office: +(44) 20 7025 8513
Date: 10/05/2006 08:55:38 AM Produced by the JSE SENS Department
