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SPS
SPS
Spescom - Preliminary reviewed results for the year ended 30 September 2006
Spescom Limited
(Registration number 1987/001083/06)
Share code: SPS
ISIN: ZAE000017919
PRELIMINARY REVIEWED RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2006
SUMMARISED CONSOLIDATED INCOME STATEMENTS
Audited
and
Reviewed restated
year year ended
ended
30/09/06 30/09/05
R"000 R"000
Total revenue 220 049 223 387
Continuing operations
Turnover 202 164 211 105
Cost of sales (101 268) (95 160)
Gross profit 100 896 115 945
Operating expenses after other (108 432) (121 326)
income
Loss from operations (7 536) (5 381)
Foreign exchange (losses)/profits on (4 005) 215
foreign loans
Loan write downs 657 (7 139)
Operating loss before impairments, (10 884) (12 305)
goodwill and interest
Variation in shareholding - 52 651
Impairment and goodwill adjustments (2 506) (29 533)
Operating (loss)/profit before (13 390) 10 813
interest
Investment income 1 595 3 071
Finance charges (4 280) (4 728)
Operating (loss)/profit (16 075) 9 156
Taxation 355 (3 305)
Net (loss)/profit after tax (15 720) 5 851
Loss from associate (2 861) (6 214)
Net loss for the year from (18 581) (363)
continuing operations
Discontinued operation
Loss for the year from discontinued (1 822) (1 196)
operation
Loss for the year (20 403) (1 559)
Attributable to:
Equity holders of parent (20 403) (2 421)
Minority interests - 862
(20 403) (1 559)
Reconciliation of headline
(loss)/earnings
Net earnings attributable to (20 403) (1 559)
ordinary shareholders
Headline earnings adjustments 2 404 29 634
- (Profit)/loss on sale of fixed (102) 102
assets
- Write down in investment 2 506 19 483
- Impairment of goodwill - 10 049
Headline(loss)/earnings (17 999) 28 075
Number of shares in issue 78 768 78 768 056
056
Number of shares on which earnings 72 320 72 590 276
per share and diluted earnings per 538
share is calculated
Ratio analysis cents per cents per
share share
(Loss)/earnings per share:
- basic, for the loss for the period (28,2) (3,3)
attributable to ordinary equity
holders of the parent
- basic, for the loss from (25,7) (1,7)
continuing operations for the period
attributable to ordinary equity
holders of the parent
- diluted, for the loss for the (28,2) (3,3)
period attributable to ordinary
equity holders of the parent
- diluted, for the loss from (25,7) (1,7)
continuing operations for the period
attributable to ordinary equity
holders of the parent
- basic, for the loss the from (2,5) (1,6)
discontinued operations
- diluted, for the loss from (2,5) (1,6)
discontinued operations
Headline (loss)/earnings per share:
- Headline (loss)/earnings per share (24,9) 38,7
from continuing operations
- Diluted headline (loss)/earnings (24,9) 38,7
per share from continuing operations
Net asset value per share 78,0 98,1
CONSOLIDATED CASH FLOW STATEMENT
Reviewed Audited
year and
ended restated
year ended
30/09/06 30/09/05
R"000 R"000
OPERATING ACTIVITIES
Cash generated by operations (4 911) 9 966
Working capital changes 3 251 (10 593)
Cash generated by operating (1 660) (627)
activities
Investment income 1 595 3 071
Finance charges (4 280) (4 728)
Taxation refunded/(paid) 42 (1 003)
Net cash flow from operating (4 303) (3 287)
activities
INVESTING ACTIVITIES
Investment to expand and maintain (10 761) (5 670)
operations
(10 761) (5 670)
FINANCING ACTIVITIES
Repurchase of treasury shares - (1 378)
Bank financing and facilities 1 429 (2 632)
1 429 (4 010)
Net change in cash and cash (13 635) (12 967)
equivalents
Effects of foreign exchange (719) 392
Cash and cash equivalents:
- At beginning of year 29 727 42 302
- At end of year 15 373 29 727
SEGMENTAL ANALYSIS
Audited
and
Reviewed restated
year year ended
ended
30/09/06 30/09/05
R"000 R"000
Sector turnover
Enterprise Content Management 149 611 148 118
Solutions
Communication Integration Activities 28 840 23 204
Services and other 23 713 39 783
202 164 211 105
Sector operating loss
Enterprise Content Management (6 131) (3 060)
Solutions
Communication Integration Activities (4 026) (8 799)
Services and other (727) (446)
(10 884) (12 305)
Geographic turnover
Africa 184 269 176 708
Europe 14 133 22 140
USA 3 038 10 450
Other 724 1 807
202 164 211 105
RECONCILIATION BETWEEN IFRS AND SA GAAP
IFRS IFRS
restated transition
year ended date
30/09/05 01/10/04
IFRS EQUITY IMPACT
Equity as previously reported - 71 716 77 334
SA GAAP
IFRS adoption (490) (2 554)
IFRS 2 Share based payment 177 -
reserve
IFRS 2 Share based payment (177) -
IAS 16 Property, plant and (568) (3 475)
equipment adjustments
Deferred tax adjustments on the 78 921
above restatements
Equity restated - IFRS 71 226 74 780
IFRS
restated
year ended
30/09/05
IFRS INCOME STATEMENT IMPACT
Net loss as previously reported (3 446)
- SA GAAP
IFRS adoption 1 887
IFRS 2 Share based payment (177)
expense
IAS 16 Property, plant and 2 907
equipment adjustments
Deferred tax adjustments on the (843)
above restatements
Net loss restatement - IFRS (1 559)
SUMMARISED CONSOLIDATED BALANCE SHEET
Audited and
Reviewed restated
as at as at
30/09/06 30/09/05
R"000 R"000
ASSETS
Non-current assets
Tangible assets 37 399 31 112
Intangible assets 14 528 14 275
Investments and loans 30 941 35 386
Deferred taxation 13 143 12 197
96 011 92 970
Current assets 79 621 79 080
Trade assets 64 248 49 353
Cash resources 15 373 29 727
Total assets 175 632 172 050
EQUITY AND LIABILITIES
Capital and reserves
Total shareholders" funds 56 415 71 226
Non-current liabilities 2 010 12 242
Deferred taxation 2 010 17
Interest bearing liabilities - 12 225
Current liabilities 117 206 88 582
Bank finance 16 1 260
Taxation 3 501 3 093
Trade liabilities 47 314 31 640
Deferred revenue and provisions 26 145 26 523
76 976 62 516
Loans to be refinanced as long-term 40 231 26 066
Total equity and liabilities 175 632 172 050
Subsequent event
Prior to year end the group commenced restructuring of the balance sheet. In
this regard Spescom secured alternative long-term financing which enabled it to
repay a substantial portion of its short-term debt. This restructuring was only
finalised subsequent to year end.
In terms of IAS 1, Presentation of Financial Statements, the revised debt
position cannot be reflected as such at year end and this has a marked impact on
any ratio analyses performed at the same date.
Due to the significant nature of this restructuring, the directors have prepared
a revised balance sheet below to provide more information to stakeholders by
reflecting the position of the company had the requirements of IAS 1 been met at
balance sheet date.
After Audited
and
restructuring restated
as at as at
30/09/06 30/09/05
R"000 R"000
ASSETS
Non-current assets
Tangible assets 37 399 31 112
Intangible assets 14 528 14 275
Investments and loans 30 941 35 386
Deferred taxation 13 143 12 197
96 011 92 970
Current assets 77 220 79 080
Trade assets 64 248 49 353
Cash resources 12 972 29 727
Total assets 173 231 172 050
EQUITY AND LIABILITIES
Capital and reserves
Total shareholders" funds 56 415 71 226
Non-current liabilities 32 362 12 242
Deferred taxation 2 010 17
Interest bearing liabilities 30 352 12 225
Current liabilities 84 454 88 582
Current portion of interest 7 478 26 066
bearing liabilities
Bank finance 16 1 260
Taxation 3 501 3 093
Trade liabilities 47 314 31 640
Deferred revenue and provisions 26 145 26 523
Total equity and liabilities 173 231 172 050
NOTES TO THE SUMMARISED FINANCIAL STATEMENTS
Adoption of International Financial Reporting Standards
In line with the listing requirements of the JSE Limited, Spescom 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 financial statements have been prepared in terms of IFRS applicable at 30
September 2006. 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 financial statements for the year ended 30 September 2006,
certain adjustments, reclassifications and share based payments valuations were
applied to comply with IFRS. The comparative information for 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 ended 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 financial statements.
The group"s opening balance sheet at that date has been restated to reflect all
existing IFRS statements 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 based payments 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 total 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 year"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.
Post balance sheet event
Subsequent to year end the group finalised the restructuring of its balance
sheet. In this regard the group secured alternative long-term funding which
enabled it to repay a substantial portion of its short-term debt. This
restructuring resulted in an improved liquidity position and a more effective
utilisation of the group"s assets.
These results have been reviewed by Ernst & Young and their review opinion is
available on request from the company secretary at Spescom"s registered office.
The group"s annual report will be available by the beginning of March 2007.
STATEMENT OF CHANGES IN EQUITY
Attributable to equity holders of the parent
Non-
Distributable Share Share distributable
reserves capital premium reserves
R"000 R"000 R"000 R"000
IFRS restated 12 292 693 45 968 14 965
balance at 30
September 2004
Foreign currency 68
translation profit
arising on
consolidation
Treasury shares (8) (1 370) -
purchased by Spescom
Share Trust
Net loss for the (1 559)
period
Share based payments
Attributable losses
Balance at 30 10 733 685 44 598 15 033
September 2005
Share based payments
Revaluation of land 5 954
and buildings
Foreign currency (553)
translation loss
arising on
consolidation
Net loss for the (20 403)
year
Balance as at 30 (9 670) 685 44 598 20 434
September 2006
Share based
payments Minority
reserve Total interests Total
R"000 R"000 R"000 R"000
IFRS restated - 73 918 862 74 780
balance at 30
September 2004
Foreign currency 68 68
translation profit
arising on
consolidation
Treasury shares (1 378) (1 378)
purchased by Spescom
Share Trust
Net loss for the (1 559) (1 559)
period
Share based payments 177 177 177
Attributable losses - (862) (862)
Balance at 30 177 71 226 - 71 226
September 2005
Share based payments 191 191 191
Revaluation of land 5 954 5 954
and buildings
Foreign currency (553) (553)
translation loss
arising on
consolidation
Net loss for the (20 403) (20 403)
year
Balance as at 30 368 56 415 - 56 415
September 2006
COMMENTARY
Review of operations
Spescom reported an improved trading position for the second half of the
financial year ended 30 September 2006. This enhanced operational performance is
due to improved performance across all divisions, particularly growth in the
call centre market.
During the last six months of the year the group achieved a R0,5 million trading
profit as compared to a trading loss of R8 million for the first six months of
the year. After taking into account unrealised foreign exchange losses, as well
as providing for a write-down in offshore investments during the second half of
the year, the overall effect on earnings remains negative. Therefore, the loss
for the period under review is reported at R20,4 million as compared to the R1,6
million loss for the comparative year. It is important to note that the loss for
the prior year included the positive effect of restructuring the group"s
offshore investment.
The reduced turnover can be ascribed to the sale of the South African eB
software division and the unpredictable nature of the telecommunications
industry. Deregulation has, during the period under review, done little to drive
dynamic decision making processes or enhanced spending on technology
requirements. However, indications are that this is set to change with the
formal launch of the second network operator.
Prior to year end the group commenced restructuring of the balance sheet with
the objective of utilising assets more effectively and improving liquidity. In
this regard Spescom secured alternative long-term financing which enabled the
company to repay a substantial portion of its short-term debt. This
restructuring was only finalised subsequent to year end and as such, the group
was unable to report the improvement in the balance sheet at year end. Due to
the significant effect of this restructure, the directors have included the
adjusted balance sheet which reflects this new position, for the benefit and
review of all stakeholders.
Prospects
2007 will mark Spescom"s 30th year in business. This makes the company one of
the most enduring South African owned brands in the technology sector. During
this time the company has experienced difficult times but is strategically on a
positive path.
Spescom expects to remain a dominant force in the call centre market as the
demand for telephony solutions continues to increase. This is particularly
pertinent in Africa, where nations are focusing on implementing modern
communication systems on the back of government awareness of global competition.
The group"s media division is poised to benefit from the economic boost
anticipated from hosting the 2010 World Cup and is already involved in various
upgrade projects within the broadcast industry.
Forecasts for telecommunications business continue to be difficult. However,
there are indications of increased activity that may bode well for the long
awaited movement in this market.
It is rewarding to note that due to growth in other core business areas Spescom
has a decreased dependency on telecommunications revenue. Therefore, when
activity in this arena gains true impetus, it is expected to add incrementally
to the group"s profit line.
Internationally the group remains focused on globalisation of its voice
technology products by leveraging its research and development technology centre
of excellence.
Company secretary
Ms N Magadze resigned as company secretary, effective 31 May 2006 and was
succeeded by Mrs J Caddy on 1 June 2006.
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
Chief Executive Officer Chief Financial Officer
Johannesburg
28 November 2006
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
www.spescom.com
Date: 28/11/2006 07:30:39 AM Produced by the JSE SENS Department
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