| Wed 27 Sep 2006, 7:00 | | GijimaAst - Audited results for the year ended 30 |
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GIJ
GIJ
GijimaAst - Audited results for the year ended 30 June 2006
Gijima Ast Group Limited
Registration number 1998/021790/06
Share code: GIJ & ISIN: ZAE000064606
Audited results for the year ended 30 June 2006
Revenue up by 24,4% to R1,95 billion
Greatly improved Black Economic Empowerment credentials
Headline earnings per share of 2,93 cents
Current ratio of 1,35 times up from 1,09 times
Cash generated from operating activities up by R91,5 million to R94,1
million
Profitability improved by R87,7 million
Abridged income statement
for the year ended 30 June 2006
Audited Audited
IFRS IFRS adjusted
30 June 2006 30 June 2005
Notes R"000 R"000
Continuing operations
Revenue 1 951 041 1 568 783
Other operating income 2 299 1 518
Income 1 953 340 1 570 301
Earnings before interest,
tax, depreciation,
amortisation and impairment charges 111 675 122 253
Impairment charges (5 000) (36 082)
Earnings before interest,
tax, depreciation and
amortisation charges (EBITDA) 106 675 86 171
Depreciation and amortisation
charges (34 954) (44 437)
Operating profit 2 71 721 41 734
Financial income 7 289 16 805
Financial expenses (9 136) (21 108)
Net finance cost 3 (1 847) (4 303)
Profit after financing costs 69 874 37 431
Share of (loss)/profit of an
associate (11) 136
Profit before tax 69 863 37 567
Income tax expense (30 518) (86 506)
Profit/(loss) after tax
from continuing operations 39 345 (48 939)
Discontinued operation
Loss for the period from
a discontinued operation, net of
tax (1 319) (368)
Profit/(loss) for the period 38 026 (49 307)
Attributable to
Equity holders of the parent 22 846 (64 827)
Minority interest 15 180 15 520
38 026 (49 307)
Calculation of headline earnings
Profit/(loss) attributable
to equity holders of the parent 22 846 (64 827)
Loss on early settlement
of deferred tax asset - 83 076
Impairment of goodwill 4 000 32 742
Impairment of assets and
investments 1 000 3 340
Loss/(profit) on sale
of businesses and properties 406 (4 891)
Headline earnings 28 252 49 440
Headline earnings
per ordinary share (cent) 2,93 15,66
Fully diluted headline earnings per
ordinary share (cent) 2,93 15,66
Basic profit/(loss)
per ordinary share (cent)
from continuing operations 2,51 (20,42)
Fully diluted basic
profit/(loss) per ordinary
share (cent) from
continuing operations 2,51 (20,42)
Basic profit/(loss)
per ordinary share (cent)
from discontinuing operations (0,14) (0,12)
Fully diluted basic
profit/(loss) per ordinary
share (cent) from
discontinuing operations (0,14) (0,12)
Weighted average
number of shares (000"s) 964 667 315 638
Fully diluted
number of shares (000"s) 964 667 315 638
Number of shares
in issue (000"s) 964 667 964 667
Notes to the abridged income statement
1. Basis of preparation
The Group is reporting under International Financial Reporting Standards
(IFRS) for the first time for the year ended 30 June 2006 and accordingly,
comparatives have been restated where required. The transition date for IFRS
is 1 July 2004. Previously GijimaAst reported under South African Statements
of Generally Accepted Accounting Practice (GAAP). The audited results for
the year ended 30 June 2006 have been prepared in accordance with the
Group"s accounting policies, which comply with IFRS. The disclosures
required under IFRS 1: First-time adoption of International Financial
Reporting Standards, have been included in the above results. The following
IFRSs have impacted the Group"s accounting policies:
IFRS 2: Share-based payments
The Group adopted IFRS 2 following the introduction of the GijimaAst Share
Linked Bonus Scheme during the period under review. The fair value of
notional shares granted to employees is recognised as an employee expense
with a corresponding increase in equity. The fair value is determined at
grant date and expensed over the period during which the employees become
unconditionally entitled to the equity instruments (the vesting period). The
fair value of the instruments granted is measured using the Black Scholes
valuation methodology, taking into account the terms and conditions upon
which instruments are granted. The first notional shares under the GijimaAst
Share Linked Bonus Scheme were granted on 20 December 2005 and the adoption
of IFRS 2 had no impact on previous financial periods.
IFRS 5: Non-current assets held for sale and discontinued operations
The Group has applied IFRS 5 in accordance with the transitional provisions
retrospectively from 1 January 2005. In October 2005 the Group decided to
discontinue the operations of its local strategic consulting business.
Strategic consulting does not comprise a core activity of the Group and the
business did not unlock the expected value for the rest of the Group. The
results of the discontinued business are disclosed separately.
IAS 16: Property, plant and equipment (PPE)
The residual values and useful lives of major fixed assets have been
assessed and where applicable depreciation has been adjusted as per IAS 16:
Property, plant and equipment. In addition software has been moved from the
category of software in property, plant and equipment to other intangible
assets. This has been applied retrospectively.
Other disclosure adjustments effected in this yearly report
* Early settlement discounts paid to customers have been set off against
turnover. The impact is summarised in the IFRS reconciliation.
* Certain investments have been reclassified as financial assets at fair
value through profit and loss. These investments were previously disclosed
as non-current assets and are now separately disclosed as current assets.
* Deferred tax has been adjusted for the changes made to assets and
liabilities because of the adoption of IFRS.
* In respect of all foreign operations, any differences that have arisen
before 1 July 2004, the date of transition to IFRS, are presented as a
separate component of equity.
KPMG Inc."s unmodified auditors" reports included in the annual financial
statements and on the summarised financial statements contained in this
abridged report are available for inspection at the company"s registered
office.
Audited Audited
IFRS IFRS adjusted
30 June 2006 30 June 2005
R"000 R"000
2. Operating profit
The following material items
have been charged
to operating profit
Loss/(profit) on sale of
businesses and property,
plant and equipment 406 (4 891)
Impairment of assets and investments 1 000 3 340
Profit on sale of investment (140) -
Amortisation of client contracts 5 818 1 568
Impairment of goodwill 4 000 32 742
Exchange rate (gains) on translation (7 486) (20 623)
3 598 12 136
3. Net finance cost
Interest received 7 289 16 805
Reversal of excess interest provision - 17 698
Fair value adjustment 3 022 (2 090)
Finance costs (12 158) (36 716)
(1 847) (4 303)
Abridged segmental analysis by business segment
Audited Audited
IFRS IFRS adjusted
30 June 2006 30 June 2005
R"000 R"000
Revenue
Enterprise Applications Solutions 661 669 569 529
Managed Services 1 289 372 999 254
1 951 041 1 568 783
Operating profit
Enterprise Applications Solutions 67 012 42 976
Managed Services 182 875 188 405
Corporate and other (174 568) (177 511)
75 319 53 870
Material items per note 2 (3 598) (12 136)
Operating profit 71 721 41 734
Abridged balance sheet
as at 30 June 2006
Audited Audited
IFRS IFRS adjusted
30 June 2006 30 June 2005
R"000 R"000
ASSETS
Non-current assets 327 973 331 684
Property, plant and equipment 57 075 54 731
Intangible assets 101 715 111 792
Derivative financial instrument 12 076 9 051
Investment in an associate 196 1 207
Deferred tax asset 156 911 154 903
Current assets 624 709 556 755
Inventories 45 841 49 210
Short-term loans 4 191 -
Trade and other receivables 393 548 393 645
Financial assets at fair
value through profit and loss 670 2 889
Current tax asset 3 901 12 949
Cash and cash equivalents 176 558 98 062
Total assets 952 682 888 439
EQUITY AND LIABILITIES
Total equity 305 050 272 374
Equity attributable to
equity holders of the parent 264 271 246 775
Minority interest 40 779 25 599
Non-current liabilities 184 441 103 190
Interest bearing borrowings 140 530 70 347
Operating lease liability 22 067 19 801
Deferred tax liability 21 844 13 042
Current liabilities 463 191 512 875
Trade and other payables 225 755 218 502
Provisions 53 544 43 296
Income received in advance 46 063 41 113
Short-term portion of
interest bearing borrowings 13 697 36 161
Leave pay accrual 43 022 37 338
Sundry payables
(including payroll vendors and VAT) 38 946 62 346
Bank overdrafts 2 547 41 221
Amounts due to vendors 1 380 -
Current tax liability 38 237 32 898
Total equity and liabilities 952 682 888 439
Abridged cash flow statement
for the year ended 30 June 2006
working capital changes 117 906 108 116
Working capital changes (9 564) (49 881)
Net finance cost (4 869) (24 608)
Normal tax paid (9 338) (30 988)
Cash generated from
operating activities 94 135 2 639
Cash flows from
investment activities
Vendor payments for
past acquisitions 1 380 (380)
Cash obtained from acquisition 355 2 823
Acquisition expenses (600) (3 425)
Property, plant and
equipment acquired,
net of disposals (25 819) 4 676
Cash (used in)/generated
from investment activities (24 684) 3 694
Cash flows from financing activities
Proceeds from rights issue - 160 000
Share issue expenses - (3 731)
Net proceeds from/(repayment of)
long-term borrowings 47 719 (144 055)
Cash from financing activities 47 719 12 214
Net increase in cash
and cash equivalents 117 170 18 547
Cash and cash equivalents at the
beginning of the year 56 841 38 294
Cash and cash equivalents
at the end of the year 174 011 56 841
Abridged statement of changes in equity
Non-
Distri- distri-
Share Share Vendor butable butable
R"000 capital premium claims reserves reserves
Group
Balance at
1 July 2004
(IFRS adjusted) 184 343 457 8 207 (278 720) (46 617)
Changes in amounts
due to vendors (8 207)
Dividends of
subsidiaries
Transfer to non-
distributable
reserves (27 840) 27 840
(Loss)/profit
for the period (64 827)
Currency translation
differences (10 550)
Total recognised
income and expense - - (8 207) (92 667) 17 290
New shares issued 780
Premium on new
shares issued
during the year 275 923
Discount on
acquisition (IFRS 3) 30 876
Share issue expenses (3 731)
Balance at
30 June 2005 964 646 525 - (371 387) (29 327)
Recognised income
and expense
transactions:
Profit for the period 22 846
Share-based
payments 429
Currency translation
differences (7 208)
Revaluation of
land and buildings 1 429
Balance at
30 June 2006 964 646 525 - (348 112) (35 106)
Minority Total
R"000 Total interest equity
Group
Balance at
1 July 2004
(IFRS adjusted) 26 511 14 579 41 090
Changes in amounts
due to vendors (8 207) (8 207)
Dividends of
subsidiaries (4 500) (4 500)
Transfer to non-
distributable
reserves - -
(Loss)/profit
for the period (64 827) 15 520 (49 307)
Currency translation
differences (10 550) (10 550)
Total recognised
income and expense (83 584) 11 020 (72 564)
New shares issued 780 780
Premium on new
shares issued
during the year 275 923 275 923
Discount on
acquisition (IFRS 3) 30 876 30 876
Share issue expenses (3 731) (3 731)
Balance at
30 June 2005 246 775 25 599 272 374
Recognised income
and expense
transactions:
Profit for the period 22 846 15 180 38 026
Share-based
payments 429 429
Currency translation
differences (7 208) (7 208)
Revaluation of
land and buildings 1 429 1 429
Balance at
30 June 2006 264 271 40 779 305 050
IFRS reconciliations
Year ended
30 June 2005
R"000
Revenue
Previously reported (GAAP) 1 587 302
Less settlement discounts granted (1 724)
Revenue of discontinued operation (16 795)
IFRS adjusted revenue 1 568 783
Loss attributable to equity holders
of the parent
Previously reported (GAAP) (64 834)
Depreciation (post tax) 7
IFRS adjusted loss for the period (64 827)
30 June 2005 1 July 2004
R"000 R"000
Total equity
Previously reported (GAAP) 243 258 23 001
Minority interest 25 599 14 579
Depreciation (post tax) 3 517 3 510
IFRS adjusted total equity 272 374 41 090
INTRODUCTION
The results for the year ended 30 June 2006 reflect good progress in
entrenching the recovery of GijimaAst. The Group is back on course as
evidenced by the profitable revenue growth reported in the results. Reported
profit for the year of R22,8 million, attributable to equity holders of the
parent, shows a substantial turnaround from the R64,8 million loss reported
in 2005.
The Group successfully halted the revenue and margin declines reported in
previous periods. However, revenue growth was curtailed by ongoing pressure
from our client base to reduce costs for commoditised outsourcing, as well
as delays in major public sector contract awards, where we are awaiting
results.
We"re pleased with the further improvement in service levels achieved during
the year which contributed to both client retention and satisfaction.
The Group continues to strengthen its position in the ICT industry, both
from a product and services perspective. BMI- Tecknowledge recognised
GijimaAst as the second largest outsource company in terms of revenue during
the 2005 calendar year and number one in desktop and network outsourcing.
Our Black Economic Empowerment credentials, with a 45% BEE shareholding
(that is 37% directly Black owned and unencumbered), are now acknowledged as
the best in the ICT Services Industry. We were rated AA by Empowerdex and
8th out of the top 200 JSE listed companies in a recent Financial Mail
survey on BEE in major companies.
Three noteworthy post balance sheet events were concluded:
A new R960 million five year contract for services with Absa Bank;
A debtors securitisation enabling settlement of all short-term interest
bearing debt plus the addition of a further R133 million to cash holdings;
and
The acquisition of the remaining 30% shareholding in AST Distributed
Technology Services (Pty) Limited (DTS), previously held by Absa.
MARKET CONDITIONS
Following several years of low growth, the client spending environment
finally showed signs of improvement. Opportunities arose mainly in the
private sector, in the pursuit of lower infrastructure and technology costs
and stronger competitive advantages. Participation by suppliers is based not
only on ability to deliver cost savings effectively, but also on value
added. The growth was mainly in the commodity and hardware sector, but in
time this will flow through to the services market.
Major new business awards by the public sector continued to disappoint
during the year. However, the State Information Technology Agency (SITA),
following its own reorganisation under new management, is now better
positioned than ever before to support the country and Government"s ICT
objectives. GijimaAst was successful in a number of SITA Transversal tenders
awarded during the year, and participated in several large tenders where we
still await a decision from SITA. The South African Revenue Services (SARS)
cancelled some tenders where we were likely to feature, but have now re-
issued the tenders.
Improved industry prospects have the inevitable result of increased demand
for experienced skills and this puts pressure on both staff retention and
cost containment.
FINANCIAL UPDATE
Reported revenue for the year ended 30 June 2006 increased by 24,4% to R1,95
billion. Revenue from the former Gijima companies was consolidated for the
full year following the merger in May 2005 of Gijima and AST. On a
comparative basis, revenue growth of 6,5% would have been reflected.
The R20,5 million increase in earnings before interest, tax, depreciation
and amortisation (EBITDA) was achieved despite a R13,1 million reduction in
foreign exchange gains from a contribution of R20,6 million in 2005 to R7,5
million in 2006.
Amortisation of R5,8 million of the value placed on contractually secured
agreements at the date of the merger with the Gijima businesses negatively
impacted headline earnings. Impairments of R5 million relating to historical
acquisitions also impacted profit for the period.
An effective tax rate of 43,7% was reported which was much higher than
anticipated. The major differences between the reported rate and the
statutory tax rate were as a result of deferred tax asset balances which
were written back on discontinued operations and dormant entities. In
addition deferred tax assets in a subsidiary were not raised due to
uncertainty of future taxable income. This compares negatively to an
effective tax rate of only 5,0% (excluding the once- off R83 million SARS
trademark settlement) in 2005, which accentuates the disparity in headline
earnings compared to 2005.
The Group reported profit attributable to ordinary shareholders of R22,8
million compared to a loss of R64,8 million in 2005. However, headline
earnings declined by R21,2 million due to:
Reduced foreign currency translation profits of R13,1 million;
Increased amortisation on client contracts of R4,3 million;
The R17,7 million swing in tax charge due to the significant change in
effective tax rate (assuming the Group had paid the statutory rate of 29%
for both years); and
An after-tax loss of R12,5 million incurred in the Group"s Namibian
subsidiary. Steps have been taken to address the problems which contributed
to this loss.
Net cash on hand increased by R117,2 million as at 30 June 2006. Cash flow
generated from operating activities increased by R91,5 million, providing
evidence of improved trading results. The Group generated R94,1 million cash
from operating activities compared to R2,6 million for the comparative
period, supported by reduced investments in working capital of R40,3 million
during the year.
The Group incurred capital expenditure of R27,4 million during the period
under review, the majority of which relates to the procurement of income
generating computer equipment.
CONTINGENT LIABILITIES
At 30 June 2006 the Group had contingent liabilities in respect of
registered performance bonds, bank lease or other guarantees to the value of
R3,3 million (June 2005: R2,7 million).
OPERATIONAL UPDATE
Managed Services, encompassing all of the Group"s infrastructure-related
activities, was negatively impacted by fierce competition and ongoing
pricing pressure from existing clients. Its performance was disappointing,
having been geared for growth particularly in the public sector, which has
not yet materialised.
Enterprise Application Solutions effected a strong turn around during the
year and performed in line with expectations as all business units increased
profitability. There was a perceptible increase in private sector demand.
However, project values were smaller than in the past.
The Group"s industry focused units continue to be a competitive advantage.
Our mining business unit, GMSI, reported excellent results as the mining
sector invested to meet demand. The financial services and retail offering
maintained its edge with several noteworthy contract awards. The restructure
and integration of industrial automation and manufacturing activities
resulted in a return to profitability.
Towards year end, a Group realignment was initiated to entrench our client
centric approach with a flatter structure. This will also further leverage
the integration of Gijima and AST to extract additional efficiencies and
financial benefits. The amended structure saw the formation of focused
business units which are totally responsible for relationships with top
nominated commercial and public sector clients. The technical competencies
which were traditionally housed in Managed Services and Enterprise
Application Services were consolidated into a single resource pool to
further streamline the organization and improve delivery to clients. Key
products and services will be added to ensure the relevance and leadership
of the Group"s offerings. The new client centric structure led to a number
of executive appointments - Carel Potgieter (Group Chief Operating Officer),
Chris Mahlakwane (Managing Executive, Competency Centres), Dolf Prinsloo
(Managing Executive, Commercial Sector) and Livingstone Chilwane (Managing
Executive, Public Sector). These executives all enjoy very good ICT business
management experience.
POST BALANCE SHEET EVENTS
We secured a new five year contract with Absa following year end, valued at
R960 million. Our ability to deliver on this contract was favourably
benchmarked against our peer group by a large international research
organisation, who assisted Absa in evaluating our ability to meet Absa"s
objectives, including cost reductions and further improvement in service
levels. Absa"s technology infrastructure comprises of more than 48 000
desktops, laptops and servers; 80 000 peripherals and 1 500 Local Area
Networks (LANS).
We also announced the securitisation of our debtors book with effect from 31
July 2006. R256 million was raised through the issue of 5 year non-
amortising debentures which were awarded a zaAA credit rating by CA Ratings
after analysis of the Group"s debtors book. This enabled us to settle all
short term interest bearing facilities and our liabilities to Kumba and
SARS. In addition, numerous restrictive covenants and sureties were
eliminated, giving the Group the ability to leverage its balance sheet more
effectively.
The Group agreed terms with Absa Bank to acquire its 30% shareholding in DTS
in order for GijimaAst to own 100% of a key contributor to Group profits.
The effective date of the transaction is 1 July 2006. A positive impact on
earnings per share of 28% to 3,22 cents for the 2006 financial year would
have resulted, had the acquisition been effective on 1 July 2005 while
headline earnings per share would have increased by 24% to 3,64 cents. By
integrating DTS into the Group, GijimaAst is now positioned to maximise its
offering for convergence in ICT.
DIVIDEND POLICY
There will be no dividend payments for the 2006 financial year but the
Board"s clear intention is, however, to pay dividends as soon as
practicable. In addition the Board will seek shareholder approval at its
next Annual General Meeting to enable it to effect share buybacks.
CHANGES TO THE BOARD OF DIRECTORS
Hans Smith will relinquish his position as Chairman at the end of his
current contract, which expires in December 2006. He will subsequently join
the Board of our BEE partner Guma. The Chairman"s role will be fulfilled by
Robert Gumede as of January 2007.
Marthinus Erasmus tendered his resignation from the Board in June 2006. We
extend our heartfelt gratitude to him for his extensive involvement in
restoring the prospects of the Group.
Two non-executive Directors resigned from the Board after year end. Johan
Potgieter resigned due to work pressures. Warren Drue kindly agreed to step
down in line with our strategy to streamline the Board. We sincerely thank
them for their significant contribution to the creation of the new GijimaAst
and achieving its current position in the market.
In support of rationalising the Board, Nhlanhla Mlongo will become alternate
Director to Kalaa Mpinga, also in January 2007.
PROSPECTS
The realignment renewed our client focus, while streamlining our technical
capabilities to bring about greater operating efficiencies. We believe that
we are ideally positioned to participate in market opportunities and in the
year ahead, we will focus on profitable revenue growth.
Increased revenue will be driven by the new sales structure. The public
sector is on the verge of significant project awards, facilitated by the
repositioned and businesslike SITA. Demand from the private sector is good,
particularly in the resources and financial services sectors. We will also
pursue opportunities in Africa, through partnerships with key clients.
As a result of the alignments referred to above we are confident that we are
well positioned to grow the business profitably and to increase our market
share.
ACKNOWLEDGEMENTS
None of the strategic progress made during 2006 would have been possible
without the ongoing commitment of our employees, and I thank them for their
support.
Our executive team"s foresight and hard work were crucial to successfully
merging Gijima and Ast, and concluding the post balance sheet events. I am
grateful for your contribution which was crucial to restoring the Group"s
profitability.
Finally, I also extend my thanks to our immensely talented and supportive
Board of Directors. I express my sincere gratitude for your active
participation and contributions in strategic matters affecting GijimaAst
during the year.
John E Miller
CEO
27 September 2006
Directors:
HJ Smith* (Chairman), RW Gumede (Deputy Chairman), JE Miller (Chief
Executive Officer) CJH Ferreira (Financial Director), CP Potgieter (Chief
Operating Officer), M Macdonald*, NI Mhlongo*, CME Mostert*, K Mpinga*, AFB
Mthembu* JCL van der Walt*, Dr NJ Dlamini*
* Non-executive
Company Secretary:
J Rademan
Registered Office:
47 Landmarks Avenue, Kosmosdal
Samrand, South Africa
(012) 675 5000
Transfer Secretaries
Link Market Services SA (Pty) Limited
(Registration number 2000/007239/07)
5th Floor, 11 Diagonal Street, Johannesburg, 2001
(PO Box 4844, Johannesburg, 2000)
Gijima Ast Group Limited
Registration number 1998/021790/06
Share code: GIJ & ISIN: ZAE000064606
Date: 27/09/2006 07:00:19 AM Produced by the JSE SENS Department
