| Tue 27 Feb 2007, 7:00 | | GIJ - Gijima Ast - Unaudited results for the six m |
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GIJ
GIJ
GIJ - Gijima Ast - Unaudited results for the six months ended 31 December 2006
Gijima Ast Group Limited
(Registration number 1998/021790/06)
Share code: GIJ * ISIN: ZAE000064606
UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2006
* Revenue up by 15,1% to R1,0 billion
* Operating profit up by 31,3% to R32 million
* Profit attributable to shareholders up by 35% to R12 million
* Earnings per share up by 14,3% to 1,20c
* Headline earnings per share up by 22,1% to 1,16c
* Net cash balances up by 109,4% to R169 million
Condensed income statement for the six months ended 31 December 2006
Unaudited Unaudited Audited
31 December 31 December 30 June
2006 2005 2006
(6 months) (6 months) (12 months)
Note R`000 R`000 R`000
s
Continuing operations
Revenue 1 012 351 879 499 1 951 041
Other operating 597 395 2 299
income
Income 1 012 948 879 894 1 953 340
Earnings before 45 429 46 681 111 675
interest, tax,
depreciation,
amortisation and
impairment charges
Impairment charges - - (5 000)
Earnings before 45 429 46 681 106 675
interest, tax,
depreciation and
amortisation charges
(EBITDA)
Depreciation and (13 503) (22 363) (34 954)
amortisation charges
Operating profit 5 31 926 24 318 71 721
Financial income 6 571 6 005 7 289
Financial expenses (14 126) (4 611) (9 136)
Net finance 6 (7 555) 1 394 (1 847)
(cost)/income
Profit after finance 24 371 25 712 69 874
costs
Share of 2 292 (35) (11)
profit/(loss) of an
associate
Profit before tax 26 663 25 677 69 863
Normal and deferred 7 695 7 140 23 630
tax charge
Secondary tax on 4 497 263 94
companies
Income tax expense 12 192 7 403 23 724
Profit after tax from 14 471 18 274 39 345
continuing operations
Discontinued
operation
Loss for the period - (1 536) (1 319)
from a discontinued
operation, net of tax
Profit for the period 14 471 16 738 38 026
Attributable to
Equity holders of the 11 604 8 598 22 846
parent
Minority interest 2 867 8 140 15 180
14 471 16 738 38 026
Calculation of
headline earnings
Profit attributable 11 604 8 598 22 846
to equity holders of
the parent
Impairment of - - 4 000
goodwill
Impairment of assets - - 1 000
and investments
(Profit)/loss on sale (428) 555 406
of businesses and
properties
Headline earnings 11 176 9 153 28 252
Basic earnings per 1,20 1,05 2,51
ordinary share (cent)
from continuing
operations
Diluted earnings per 1,20 1,05 2,51
ordinary share (cent)
from continuing
operations
Headline earnings per 1,16 0,95 2,93
ordinary share (cent)
Diluted headline 1,16 0,95 2,93
earnings per ordinary
share (cent)
Basic (loss) per - (0,16) (0,14)
ordinary share (cent)
from discontinuing
operations
Diluted (loss) per - (0,16) (0,14)
ordinary share (cent)
from discontinuing
operations
Weighted average 964 667 964 667 964 667
number of shares
(000`s)
Diluted number of 964 667 964 667 964 667
shares (000`s)
Number of shares in 964 667 964 667 964 667
issue (000`s)
Notes to the condensed income statement
1. Reporting entity
The condensed consolidated interim financial statements of Gijima Ast Group
Limited (the Company) as at and for the six months ended 31 December 2006
comprise the Company and its subsidiaries (together referred to as the Group)
and the Group`s interests in associates and jointly controlled entities.
2. Statement of compliance
These condensed consolidated interim financial statements have been prepared in
accordance with International Financial Reporting Standard (IFRS) IAS 34 Interim
Financial Reporting. They do not include all of the information required for
full annual financial statements, and should be read in conjunction with the
consolidated financial statements of the Group as at and for the year ended 30
June 2006.
3. Significant accounting policies
Except as described below, the accounting policies applied by the Group in these
condensed consolidated financial statements are the same as those applied by the
Group in its consolidated financial statements as at and for the year ended 30
June 2006.
The Group adopted an accounting policy in respect of purchases of minority
interests. The recognition of increases and decreases in ownership interests in
subsidiaries without a change in control is accounted for as equity transactions
in the consolidated financial statements. Accordingly, any premiums or discounts
on subsequent purchases of equity instruments from minority interests are
recognised directly in the parent shareholders` equity.
4. Purchase of minority interest
During the period under review the purchase of the remaining 30% minority
interest of AST Distributed Technology Services (Pty) Ltd (DTS) was concluded.
In terms of the acquisition DTS declared a dividend of R36 million to Absa and
thereafter GijimaAst Holdings (Pty) Ltd (GijimaAst) purchased the DTS shares
held by Absa for R45 million with effect from 1 July 2006.
Unaudited Unaudited Audited
31 December 31 December 30 June
2006 2005 2006
(6 months) (6 months) (12 months)
R`000 R`000 R`000
5. Operating profit
The following material
items have been included
in the calculation of
operating profit:
(Profit)/loss on sale of (428) 555 406
businesses and property,
plant and equipment
Impairment of assets and - - 1 000
investments
Profit on sale of - - (140)
investment
Amortisation of client - 4 974 5 818
contracts
Impairment of goodwill - - 4 000
Exchange rate (2 183) 12 488 (7 486)
(gains)/losses on
translation
(2 611) 18 017 3 598
6. Net finance
(cost)/income
Interest received 6 571 6 005 7 289
Fair value adjustment on - 382 3 022
derivative instrument
Interest paid (14 126) (4 993) (12 158)
(7 555) 1 394 (1 847)
7. Contingent liabilities
The contingent liability arises from the historic incorrect deduction of the VAT
portion of finance lease payments by a subsidiary of the Group. The necessary
correction is included as a current tax liability. However any subsequent
interest that may be levied by the South African Revenue Services, relating to
this incorrect tax treatment, has not been provided for as GijimaAst and the
South African Revenue Services are still in the initial stages of negotiations.
At 31 December 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 2006: R3,3 million).
8. Comparatives
The `headline earnings per share` comparative figures of 31 December 2005 have
been restated to comply with the Circular on Headline Earnings. Previously the
Headline Earnings figure was reported as 1,07 cents. The loss from the
discontinued operation (R1,536 million) was incorrectly added back.
Condensed segmental analysis
for the six months ended 31 December 2006
Unaudited Unaudited Audited
31 December 31 December 30 June
2006 2005 2006
(6 months) (6 months) (12 months)
R`000 R`000 R`000
Revenue
Software and Professional 305 760 261 683 584 040
Services
Industry Niche Solutions 164 716 114 002 270 661
Infrastructure Services 541 875 503 814 1 096 340
Consolidated revenue 1 012 351 879 499 1 951 041
Segment results
Software and Professional 14 102 12 812 31 547
Services
Industry Niche Solutions 5 925 (2 454) (2 892)
Infrastructure Services 49 251 28 919 78 031
Corporate and other (11 714) (14 959) (34 965)
DTS restructuring and (25 638) - -
integration costs
Consolidated operating 31 926 24 318 71 721
profit
Condensed balance sheet
as at 31 December 2006
Unaudited Unaudited Audited
31 December 31 December 30 June
2006 2005 2006
R`000 R`000 R`000
ASSETS
Non-current assets 339 278 338 277 327 973
Property, plant and 54 033 61 289 57 075
equipment
Intangible assets 106 391 106 624 101 715
Derivative financial 12 076 9 434 12 076
instrument
Investment in associates 2 472 1 172 196
Deferred tax asset 164 306 159 758 156 911
Current assets 630 722 507 548 624 709
Inventories 54 426 47 594 45 841
Short-term loans 3 874 - 4 191
Trade and other 394 226 326 826 393 548
receivables
Financial assets at fair 341 1 938 670
value through profit and
loss
Current tax asset 7 193 6 229 3 901
Cash and cash equivalents 170 662 124 961 176 558
Total assets 970 000 845 825 952 682
EQUITY AND LIABILITIES
Total equity 230 924 300 320 305 050
Equity attributable to 230 924 266 581 264 271
equity holders of the
parent
Minority interest - 33 739 40 779
Non-current liabilities 307 327 110 757 184 441
Interest-bearing 257 357 51 219 140 530
borrowings
Operating lease liability 22 729 21 029 22 067
Deferred tax liability 27 241 38 509 21 844
Current liabilities 431 749 434 748 463 191
Trade and other payables 201 391 171 462 225 755
Provisions 33 614 36 896 53 544
Income received in advance 69 754 51 552 46 063
Short-term portion of 11 719 40 591 13 697
interest-bearing
borrowings
Leave pay accrual 41 335 39 540 43 022
Sundry payables (including 39 829 35 204 38 946
payroll, vendors and VAT)
Bank overdrafts 1 410 44 131 2 547
Amounts due to vendors 460 - 1 380
Current tax liability 32 237 15 372 38 237
Total equity and 970 000 845 825 952 682
liabilities
Condensed cash flow statement
for the six months ended 31 December 2006
Unaudited Unaudited Audited
31 December 31 December 30 June
2006 2005 2006
(6 months) (6 months) (12 months)
R`000 R`000 R`000
Cash flows from operating
activities
Cash generated from 21 272 25 111 117 906
operations before working
capital changes
Working capital changes (16 105) 29 719 (9 564)
Net finance income/(cost) (7 555) 1 394 (4 869)
Normal tax paid (23 483) 2 404 (9 338)
Cash (used in)/generated (25 871) 58 628 94 135
from operating activities
Cash flows from investment
activities
Purchase of minority (80 503) - -
interest
Purchase of remaining (4 285) - -
share of joint venture
Proceeds on sale of share 580 - -
of joint venture
Vendor payments for past (920) - 1 380
acquisitions
Cash obtained from - - 355
acquisition
Acquisition expenses (1 721) - (600)
Property, plant and (9 528) (19 941) (25 819)
equipment acquired, net of
disposals
Cash (used in)/generated (96 377) (19 941) (24 684)
from investment activities
Cash flows from financing
activities
Net proceeds 117 489 (14 698) 47 719
from/(repayment of) long-
term borrowings
Cash inflow/(outflow) from 117 489 (14 698) 47 719
financing activities
Net increase/(decrease) in (4 759) 23 989 117 170
cash and cash equivalents
Cash and cash equivalents 174 011 56 841 56 841
at the beginning of the
period
Cash and cash equivalents 169 252 80 830 174 011
at the end of the period
Condensed statement of changes in equity
for the six months ended 31 December 2006
Distri- Non-
distri-
Share Share butable butable
R`000 capital premium reserves reserves
Group
Balance at 1 July 964 646 525 (371 387) (29 327)
2005
Share-based payments 28
Recognised income
and expense
transactions:
Profit for the 8 598
period
Currency translation 9 751
differences
Revaluation of land 1 429
and buildings
Balance at 31 964 646 525 (362 761) (18 147)
December 2005
Share-based payments 401
Recognised income
and expense
transactions:
Profit for the 14 248
period
Currency translation (16 959)
differences
Balance at 30 June 964 646 525 (348 112) (35 106)
2006
Share-based payments 1 461
Recognised income
and expense
transactions:
Purchase of minority (38 579)
interest (note 4)
Profit for the 11 604
period
Currency translation (7 833)
differences
Balance at 31 964 646 525 (373 626) (42 939)
December 2006
Condensed statement of changes in equity
for the six months ended 31 December 2006
Minority Total
R`000 Total interest equity
Group
Balance at 1 July 2005 246 775 25 599 272 374
Share-based payments 28 28
Recognised income and expense
transactions:
Profit for the period 8 598 8 140 16 738
Currency translation differences 9 751 9 751
Revaluation of land and buildings 1 429 1 429
Balance at 31 December 2005 266 581 33 739 300 320
Share-based payments 401 401
Recognised income and expense
transactions:
Profit for the period 14 248 7 040 21 288
Currency translation differences (16 959) (16 959)
Balance at 30 June 2006 264 271 40 779 305 050
Share-based payments 1 461 1 461
Recognised income and expense
transactions:
Purchase of minority interest (38 579) (43 646) (82 225)
(note 4)
Profit for the period 11 604 2 867 14 471
Currency translation differences (7 833) (7 833)
Balance at 31 December 2006 230 924 - 230 924
INTRODUCTION
The Group made further progress during the six months ended 31 December 2006 in
repositioning GijimaAst for profitable growth. The six month group revenue
exceeded R1,0 billion with all parts of the Group contributing to the 31%
increase in operating profit of R31,9 million (2005: R24,3 million).
The Group realignment initiated during the previous financial year is virtually
complete and the client centric structure and culture are starting to deliver
benefits. The acquisition of the 30% minority shareholding in DTS, formerly
owned by Absa, in a cash transaction of R85 million, enabled its integration
with GijimaAst`s other Competency Centres, introducing further efficiencies. A
margin optimisation programme is being introduced to further enhance the Group`s
margins.
These benefits will accrue over future periods, whilst the once-off costs have
all been incurred in this reporting period.
MARKET CONDITIONS
Enterprises are starting to spend on technology as evidenced by the number of
projects which are on the increase. However, competitor activity remains
aggressive, clients are exerting downward pressure on pricing and there are
acute skills shortages in specialist sectors which exert upward pressure on
costs. The replacement of ageing technology and the imminent new software
product launches are expected to support demand in the medium term.
Whilst the public sector is still characterised by delays in awarding projects,
there is a perceived intention to award business. Additionally, large
organisations in the private sector are expected to enter into extensive
outsource agreements and the Group is well positioned to participate in both of
these markets.
FINANCIAL UPDATE
Reported revenue for the six months ended 31 December 2006 increased by 15,1% to
over R1,0 billion despite cost pressures in the traditional outsourcing
activities and the restricted deal flow from the public sector. The increased
revenue underpinned by higher spend from key clients demonstrates acceptance of
the new client centric structure.
The Group`s operating margin increased by 31% during the period. Reported
operating profit of R31,9 million (2005: R24,3 million) was recorded despite the
impact of the DTS integration. Reported profit attributable to equity holders of
the parent increased by 35% to R11,6 million and headline earnings increased by
22% to R11,2 million translating into headline earnings per share of 1,16 cents
(2005: 0,95 cents), despite the once off costs associated with the DTS
acquisition, integration and restructuring (as discussed below).
During the period the Group raised five year debentures of R256 million through
the securitisation of debtors. While this resulted in a net finance charge of
R7,6 million it strengthened the balance sheet and provided a strong platform to
finance future growth. The company has recently been rated one notch above
investment grade by CA-Ratings and its blue chip debtors book has a zaAA rating.
The current ratio has improved from 1,17 to 1,46 times.
The Group has healthy cash balances of R169,3 million despite outflows to
acquire DTS minorities and a R16,1 million increase in working capital as a
consequence of high levels of work in progress as at 31 December 2006.
The Group incurred capital expenditure of R10,7 million during the period under
review, the majority of which relates to the procurement of income generating
computer equipment.
DTS acquisition and integration
Operating profit was negatively affected by R25,6 million of once off costs
associated with the integration and restructuring of DTS into the Availability
Services and Microsoft Competency Centres, as well as investments relating to
the new Absa contract.
Secondary Tax on Companies (STC) of R4,5 million was incurred on the payment of
a R36 million dividend to Absa which served as part of the purchase
consideration for DTS. As a result, the Group reported a high effective tax rate
of 45,7%.
The increase in Headline EPS was achieved despite the once-off impacts of 1,89
cents per share and 0,46 cents per share relating to the DTS integration and the
STC charge on the DTS acquisition respectively. Had these costs not been
incurred, headline EPS of 3,51 cents per share would have been reported.
OPERATIONAL UPDATE
During the period under review, the Group focused on entrenching the client
centric structure and culture. We embarked on extensive training throughout the
organisation to cement the mindset change and invested in systems to support
proactive service delivery. The Group anticipates further investments in systems
and process changes as we continually strive to lead the market from a service
competitiveness perspective. We started seeing the benefits with closer
cooperation between the Competency Centres (the engine room of the business) to
better serve clients. The final elements of the Gijima and AST merger were
concluded.
In our Commercial Sector Operations, relationships in Key Nominated Accounts
have strengthened as a direct consequence of the new structure. The division
exceeded its budget with increased revenue flows from key clients and the
successful negotiation of several contract renewals. Solid demand in key sectors
continues with manufacturing activity and resource prices at historical highs.
The retail sector remains buoyant and regulatory changes in telecommunications
are creating new opportunities.
During the period under review, the Public Sector Operations bolstered its team
of Account Executives with additional experience and expertise to drive the
Group`s activities in the sector. There have also been industry-wide initiatives
between the State Information Technology Agency (SITA) and the private ICT
sector to develop Strategic Programmes which should start delivering results in
the second half of the financial year. The Public Sector did not award any
significant ICT tenders, however, we anticipate the level of activity to pick up
during the second half of the financial year with announcements relating to
several large tenders currently in final evaluation.
Revenue and profitability was up in all three divisions of the Group. The
Financial Services and Retail Niche Solutions made excellent progress with the
implementation of our IPS (Integrated Processing Solutions) entity, as well as
concluding several signature verification solutions and a significant retail
project in the petrochemical industry. GMSI, the Competency Centre focused on
solutions for the mining sector, performed well against budget. It has offices
in South Africa, Australia and Canada. The division had exceptionally high
performance in Australia due to software sales.
Microsoft Professional Services benefited from the new client contracts and is
well positioned to leverage off imminent software launches including Microsoft`s
Windows Vista. Application Products delivered an excellent performance against
budget with projects including Enterprise Resource Planning, biometric solutions
and business intelligence supported by its solid vendor partnerships. All areas
of Infrastructure Services achieved positive results by eliminating duplications
to enable more efficient operations.
DIVIDEND POLICY
A dividend will be considered at year end.
PROSPECTS
The Group is well positioned for profitable growth and is able to compete on an
equal footing in this highly competitive market. The newly organised sales team
residing closer to the business operations under the guidance of a more rigorous
sales management team is expected to bolster the sales pipeline for the
remainder of the 2007 financial year and beyond. The team has undergone
comprehensive training on all the Group`s value propositions.
The Group`s organisational structure is fully aligned with the client centric
culture which is becoming inculcated across the organisation. We will leverage
on the financial benefits achieved to date and we believe that the positive
profitability trend is sustainable. A margin optimisation programme will
entrench further cost and revenue benefits without impacting service delivery.
Growth is predicated on our Commercial Clients division enjoying a higher share
of its clients` spend and the excellent potential from the Public Sector deal
flow which is currently in adjudication. Our "best in class" BEE credentials and
solid relationships in Key Nominated Accounts support our ability to grow in all
sectors.
TRANSFORMATION
During the six months under review, the Group continued to focus on
transformation at all levels, while retaining the skills attracted in the
previous year. Empowerdex endorsed the quality of GijimaAst`s empowerment in
February 2007 by confirming its AA rating and the Company remains the most
empowered company in the ICT Services Industry.
ACKNOWLEDGEMENTS
The results for the six months ended 31 December 2006 reflect the ongoing
commitment of our employees, and I extend my thanks to each and every one of you
for your contribution.
The role played by our executive team must be recognised and once again, it has
been a privilege to work with you, leveraging our assets to continue building
this company to its full potential.
Finally, I thank our Board of Directors. In particular, I extend my sincere
appreciation to Hans Smith who guided the Company through some difficult years
and who handed over Chairmanship of the Board to Robert Gumede on 1 January
2007. Hans` role in accomplishing the turn-around of GijimaAst is unquestioned.
On behalf of the Board of Directors and executive team, I commit our ongoing
support to Robert Gumede as incoming Executive Chairman and wish him a happy and
successful tenure.
John E Miller
CEO
27 February 2007
Directors:
RW Gumede (Executive 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)
www.gijima.com
Date: 27/02/2007 07:00:06 Produced by the JSE SENS Department.
