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SPS
SPS
Spescom - Unaudited interim results for the six months ended 31 March 2006
Spescom Limited
(Registration number 1987/001083/06
Share code: SPS & ISIN: ZAE000017919
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2006
SUMMARISED INCOME STATEMENTS
Unaudited Unaudited Unaudited
Restated Restated
6 months 6 months year
ended ended ended
31/03/06 31/03/05 30/09/05
R"000 R"000 R"000
Continuing operations
Revenue 96 338 114 924 212 824
Operating (loss)/profit (7 839) (9 414) 8 048
before interest
Net interest paid (1 191) (963) (1 657)
Operating loss (9 030) (10 377) 6 391
Taxation (537) (78) (2 462)
Net (loss)/profit after tax (9 567) (10 455) 3 929
Loss from associate (1 630) - (6 214)
Net loss for the period from (11 197) (10 455) (2 285)
continuing operations
Discontinued operation
Loss for the period from (646) (483) 140
discontinued operation
Loss for the period (11 843) (10 938) (2 145)
Attributable to:
Equity holders of parent (11 843) (10 593) (3 007)
Minority interests - (345) 862
(11 843) (10 938) (2 145)
Reconciliation of headline
(loss)/earnings
Net (loss)/earnings (11 843) (10 938) (2 145)
attributable to ordinary
shareholders
Headline earnings 16 - 29 634
adjustments
- Profit on sale of fixed 16 - 102
assets
- Write down in investment - - 19 483
- Impairment of goodwill - - 10 049
Headline(loss)/earnings (11 827) (10 938) 27 489
Number of shares in issue 78 768 78 768 78 768
056 056 056
Number of shares on which
earnings per share and
diluted
earnings per share are 72 320 72 590 72 590
calculated 538 276 276
Ratio analysis
(Loss)/Earnings per share
(cents):
- basic, for the loss for (16.4) (14.6) (4.1)
the period attributable to
ordinary equity holders of
the parent
- basic, for the loss from (15.5) (13.9) (4.3)
continuing operations for
the period attributable to
ordinary equity holders of
the parent
- diluted, for loss for the (16.4) (14.6) (4.1)
period attributableto
ordinary equity holders of
the parent
- diluted, for loss from (15.5) (13.9) (4.3)
continuing operations for
the period attributable to
ordinary equity holders of
the parent
- Headline (loss)/earnings (16.4) (15.1) 37.9
per share from continuing
operations
- Diluted headline (16.4) (15.1) 37.9
(loss)/earnings per share
from continuing operations
Net asset value per share 86.9 80.4 90.8
Notes to the summarised financial statements
Adoption of International Financial Reporting Standards
In line with the Listings Requirements of the JSE Limited, Spescom adopted
International Financial Reporting Standards (IFRS) with effect 1 October 2005.
As the group publishes comparative information for one year in its financial
statements, the date for transition to IFRS is effectively 1 October 2004, which
represents the start of the earliest period of comparative information
presented.
Basis of presentation
The interim financial statements have been prepared in terms of IFRS expected to
be applicable at 30 September 2006 and in compliance with IAS 34 - Interim
Financial Reporting. The financial statements for the first six months ended 31
March 2005 and the annual financial statements for the year ended 30 September
2005 were previously prepared in accordance with South African Generally
Accepted Accounting Practice (SA GAAP).
In preparing these interim financial statements for the six months ended 31
March 2006, certain adjustments, reclassifications and share based payments
valuations were applied to comply with IFRS. The comparative information for the
first six months ended 31 March 2005 and the year ended 30 September 2005 were
restated to reflect these adjustments.
Reconciliations and descriptions of the effect of the transition from SA GAAP to
IFRS on the group"s equity and net profit are provided below.
Transitional arrangements
The annual financial statements for the year ending 30 September 2006 will be
the first set of annual financial statements that comply with IFRS. The group
has applied IFRS 1 (First Time Adoption of International Financial Reporting
Standards) in preparing the interim financial statements.
The group"s opening balance sheet at that date has been restated to reflect all
existing IFRS statements expected to be applicable at 30 September 2006. At the
transition date, IFRS 1 allows a number of exemptions to this retrospective
application principle on adoption of IFRS.
The group has applied the following exemptions to retrospective application of
certain standards under IFRS:
Elections applicable at 1 October 2004
Share based payments transactions exemption
By applying the exemption, share options that were granted before 7 November
2002 or granted after 7 November 2002, but vested before 1 January 2005 are not
subject to the principle of fair value measurement in terms of IFRS 2.
The adoption of IFRS reporting has had the following consequences:
Share based payments
Share options granted to employees are subject to service and performance
vesting conditions, and the fair value is recognised as share based payment
expenses with a corresponding increase to the share option holders" reserve in
equity over the vesting period.
Adjustments implemented with effect 1 October 2004
IFRS 2 - Share based payments
The group grants share options to employees in terms of the Spescom Limited
Share Trust (the Trust) deed.
Other than costs incurred in administering the Trust, which were expensed as
incurred, these payments did not result in any expense in the income statement.
In accordance with the requirements of IFRS 2, the group now recognises an
expense in the income statement, with a corresponding credit to equity,
representing the fair value of the employee share options granted, recognised
over the vesting period of the share options.
IAS 16 - Property, plant and equipment adjustments
Under SA GAAP an item of property, plant and equipment was depreciated as a
single unit. IAS 16 requires each part of an item of property, plant and
equipment with a cost significant in relation to the toal cost of the item to be
depreciated separately. A significant part of an item of property, plant and
equipment may have a useful life and a depreciation method that is different
from the useful life and the depreciation method of another significant part of
that same item. The application of this statement resulted in a reduction in
depreciation being charged to the current period"s income statement, to the
previous year"s income statement and in the restatement of the opening balance
of distributable reserves for 2005. In calculating the depreciation charge, an
entity reduces the total depreciable amount of an asset by that asset"s residual
value. Previously, under SA GAAP, the estimated residual value was fixed on
recognition of the asset and was not subject to reassessment. IAS 16 (revised)
now requires that the residual value of the asset be reassessed at every balance
sheet date.
SUMMARISED BALANCE SHEETS
Unaudited Unaudited Unaudited
Restated Restated
as at as at as at
31/03/06 31/03/05 30/09/05
R"000 R"000 R"000
ASSETS
Non-current assets
Property, vehicles and 38 397 35 511 31 283
equipment
Intangible assets 15 498 13 040 14 403
Goodwill - 29 400 -
Investments and loans 33 024 18 214 35 386
Deferred taxation 11 706 11 082 12 197
98 625 107 247 93 269
Current assets 53 176 115 894 79 081
Inventories 10 148 8 549 13 462
Taxation prepaid 480 499 365
Accounts receivable 29 197 69 929 35 527
Cash resources 13 351 36 917 29 727
Total assets 151 801 223 141 172 350
EQUITY AND LIABILITIES
Capital and reserves
Share capital and premium 45 284 45 284 45 284
Non-distributable reserves 23 244 15 179 15 033
Share option holders" interest 1 303 - 763
(Accumulated loss)/ (1 397) 1 653 10 446
distributable reserves
Ordinary shareholders" equity 68 434 62 116 71 526
Minority interest - 1 207 -
Interest of all shareholders 68 434 63 323 71 526
Non-current liabilities 11 039 34 837 12 242
Deferred taxation 63 - 17
Interest bearing liabilities 10 976 34 837 12 225
Current liabilities 72 328 124 981 88 582
Current portion of interest 23 486 3 500 26 066
bearing liabilities
Preferred capital warrants - 13 882 -
Bank finance 5 275 3 300 1 260
Taxation 3 050 1 194 3 093
Trade payables 21 304 40 639 31 640
Provisions, contract advances 19 213 62 466 26 523
and deferred maintenance
revenue
Total equity and liabilities 151 801 223 141 172 350
SUMMARISED CASH FLOW STATEMENTS
Unaudited Unaudited Unaudited
and and
restated restated
6 months 6 months year
ended ended ended
31/03/06 31/03/05 30/09/05
R"000 R"000 R"000
OPERATING ACTIVITIES
Cash (utilised)/generated by (1 582) (7 189) 9 966
operations
Working capital changes (8 004) (3 242) (10 593)
Cash (utilised)/generated by (9 586) (10 431) (627)
operating activities
Net finance income (1 191) (963) (1 657)
Taxation paid (159) 184 (1 003)
Net cash flow from operating (10 936) (11 210) (3 287)
activities
INVESTING ACTIVITIES
Investment to expand and (5 627) (6 945) (5 670)
maintain operations
(5 627) (6 945) (5 670)
FINANCING ACTIVITIES
Proceeds from fresh issue of - 12 504 -
shares
Repurchase of treasury shares - - (1 378)
Bank financing and facilities 187 290 (2 632)
187 12 794 (4 010)
Net change in cash and cash (16 376) (5 361) (12 967)
equivalents
Effects of foreign exchange - (24) 392
Cash and cash equivalents:
- At beginning of the period 29 727 42 302 42 302
- At end of the period 13 351 36 917 29 727
RECONCILIATION BETWEEN IFRS AND SA GAAP
IFRS IFRS IFRS
Restated Restated
year 6 months transition
ended ended date
30/09/05 31/03/05 01/10/04
R"000 R"000 R"000
IFRS EQUITY IMPACT
Equity as previously reported 71 716 63 932 77 334
SA GAAP
IFRS adoption (190) (609) (2 255)
IFRS 2 Share based payment 763 763 -
reserve
IFRS 2 Share based payment (763) (763) -
IAS 16 Property, plant and
equipment adjustments (268) (857) (3 176)
Deferred tax adjustments on 78 248 921
the above restatements
Equity restated - IFRS 71 526 63 323 75 079
IFRS INCOME STATEMENT IMPACT
Net income as previously (3 446) (12 585)
reported- SA GAAP
IFRS adoption 1 301 1 647
IFRS 2 Share based payment (763) -
expense
IAS 16 Property, plant and 2 908 2 319
equipment adjustments
Deferred tax adjustments on (844) (672)
the above restatements
Net loss restated - IFRS (2 145) (10 938)
COMMENTARY
Review of operations
Traditionally the first half-year performance is much slower than that of the
second half. This trend was even more evident this year resulting in a
disappointing performance for the half-year ended 31 March 2006, when compared
to the same period last year. The decline in revenues can also be attributed to
the deconsolidation of the US operation, as well as the discontinuation of the
test and measurement division.
However, despite the revenue slump, the loss from operations was reduced from
R10.4 million, in the prior year, to R9.0 million for the six months ended 31
March 2006.
It is pleasing to note that despite the losses incurred during the first half of
the year, the gearing ratios have remained largely unchanged. During this
period, the group also made a further loan repayment and invested in the
expansion of all its operations which contributed to the cash outflow. Liquidity
is expected to improve during the second half of the year.
The poor trading results are attributable to continued delays in the awarding of
large contracts in all sectors but most notably in telecommunications, resulting
in undesirable gaps in the revenue stream. The call centre division was subject
to increased product lead times which impacted on the first half- year
performance. Little movement was seen in the voice markets during the period
under review; however, the second half is showing a steady increase in order
intake and subsequent turnover. Although no longer consolidated, the US
operation has produced two greatly improved quarters and has a healthier
qualified pipeline going forward.
Prospects
Despite deregulation, telecommunications continues to be slow moving. Due to the
proven unpredictable nature of this business and taking a conservative view of
the sector, revenues are only expected to begin flowing in 2007. Spescom
Telecommunications is well positioned to take advantage of the market growth
that is envisaged in the access network infrastructure over the next five years
and beyond. The division"s customer base is widening due to its extensive range
of Digital TV Transmission wireline and wireless access technology, plus its
strategic partnerships with world leading companies like Samsung, Redline and
Gilat. All of these factors combine to place the division in a very strong
position.
Despite a slower start, the contact centre division is experiencing a good year
with a marked improvement in performance expected in the second half.
Considerable resources have been placed in the voice arena with specific focus
on channels to market both locally and internationally. These actions are
yielding a promising second half.
Moreover, DataVoice technology developed for the SME (small, medium enterprise)
arena has been enhanced. This has resulted in the production of a highly
competitive integrated product complete with comprehensive features normally
only available in large corporate deployments. Internationally, the UK office
has formed channel partnerships throughout the European Economic Union
countries, as well as the Middle East.
Improved revenues are anticipated from the media - IT division particularly with
the lead-up to the World Cup in 2010 and the multi-billion rand digitisation
project already underway at the SABC. Furthermore, the roll-out of a market
differentiating product from strategic alliance partner, Avid, holds great
potential.
The US operation continues to attain success in the utilities sector. A notable
achievement is the significant increase in licence sales. This is very
encouraging and demonstrates a growing market acceptance of SSI"s software
products.
Innovative initiatives aimed at increasing annuity income also bode well for
more steady revenue streams. A stronger second half is anticipated.
Dividend
Spescom continues with its policy of not declaring a dividend. This policy
remains subject to review.
By order of the board
A Farah J Palmer Johannesburg
Chief Executive Chief Financial 7 June 2006
Officer Officer
Directors:
J P Myers+* (Chairperson), A Farah, W Kansteiner+*, T Makore, M C Mogase+ (alt.
C Rezek+), L Ogilvy+, J Palmer, P Vallet+ *American +Non-executive
Registered Office:
Spescom Park, Cnr Alexandra Avenue and Second Road, Midrand, 1685.
Tel +27 (11) 266 1500
Registrar:
Computershare Investor Services 2004 (Pty) Limited,
70 Marshall Street, Johannesburg, 2001. Tel: +27 (11) 370 5000
Spescom Limited
(Registration number 1987/001083/06
Share code: SPS ISIN: ZAE000017919
STATEMENT OF CHANGES IN EQUITY
Distributable Share Share
reserves/
(accumulated capital premium
loss)
R"000 R"000 R"000
Balance at 30 September 2004 14 846 693 45 968
IFRS adjustments (2 255)
IFRS restated balance at 30 12 591 693 45 968
September 2004
Attributable income
Foreign currency translation
profit arising on
consolidation
Treasury shares purchased by (8) (1 369)
Spescom Share Trust
Net loss for the period (10 938)
Balance at 31 March 2005 1 653 685 44 599
Share based payments
Attributable losses
Foreign currency translation
profit arising on
consolidation
Treasury shares purchases by - -
Spescom Share Trust
Issue of shares by Spescom
Share Trust
Net profit for the period 8 793
Balance at 30 September 2005 10 446 685 44 599
Share based payments
Revaluation of land and
buildings
Foreign currency translation
profit arising on
consolidation
Net loss for the period (11 843)
Balance as at 31 March 2006 (1 397) 685 44 599
Non- Minority Share
distributable option
reserves interests holders" Total
interest
R"000 R"000 R"000 R"000
Balance at 30 September 2004 14 965 862 - 77 334
IFRS adjustments (2 255)
IFRS restated balance at 30 14 965 862 - 75 079
September 2004
Attributable income 345 345
Foreign currency translation 214 214
profit arising on
consolidation
Treasury shares purchased by - (1 377)
Spescom Share Trust
Net loss for the period (10 938)
Balance at 31 March 2005 15 179 1 207 - 63 323
Share based payments 763 763
Attributable losses (1 207) (1 207)
Foreign currency translation (146) (146)
profit arising on
consolidation
Treasury shares purchases by -
Spescom Share Trust
Issue of shares by Spescom
Share Trust
Net profit for the period 8 793
Balance at 30 September 2005 15 033 - 763 71 526
Share based payments 540 540
Revaluation of land and 8 150 8 150
buildings
Foreign currency translation 61 61
profit arising on
consolidation
Net loss for the period (11 843)
Balance as at 31 March 2006 23 244 - 1 303 68 434
www.spescom.com
Date: 07/06/2006 05:31:17 PM Produced by the JSE SENS Department
