3 Directors’ Report - Datacom · 2015-02-05 · creation of Datacom Connect, a call centre business, and the formation of a new joint venture company Datacom Financial Services

Datacom Annual Report / www.datacom.co.nz

3 Directors’ Report

6 Datacom - Company Report

10 Statement of Financial Performance

11 Statement of Movements in Equity

12 Statement of Financial Position

14 Statement of Cash Flows

16 Notes to and Forming Part of the Financial Statements

38 Auditor’s Report

Contents

“ Focusing on thecost-benefit equationand delivering bottomline results rapidly...”

1


Your Directors are pleased to report thatDatacom Group Ltd has had another successfulfinancial year, with growth both in New Zealandand Australian operations, in a year of difficulttrading conditions for the IT sector in bothcountries.

Total revenue for the year ending 31 March2003 was $242 million up 12% on the previousyear’s $216 million.

The net surplus before tax was $17.5 million,compared with $15.12 million in 2002 anincrease of 16%. After tax profit for the yearwas $11.6 million, compared with the previousyear’s $9.7 million, up 20%.

With growth in most of the business units,Datacom continued to increase staff numbersduring the year, with the year end total 1,562from 1,319 in 2002, an increase of 243. Of thetotal, 1,042 are New Zealand based, 475 inAustralia, and 45 in South East Asia.

New Zealand had a strong year with revenuesof $191 million, compared with $170 millionin the previous year, an increase of 12% withsignificant growth in software developmentand outsourcing activities.

Australia also had a good year with revenuesup from $35 million to $46 million an increaseof 32%. Part of this increase was due to thecreation of Datacom Connect, a call centrebusiness, and the formation of a new jointventure company Datacom Financial ServicesPty Ltd, 51% owned by Datacom and 49%owned by Dun & Bradstreet. There was also asignificant increase in the Systems business inAustralia.

Directors’ Report

3

In South East Asia revenues were down from$10 million in 2002 to $4 million in 2003.This reduction in revenue is a consequenceof consolidating operations into Malaysiaand closing other South East Asia offices.

The financial position ofthe Company continued tostrengthen, with shareholders’funds at year end totalling$41 million, compared with$35 million in 2002. The cashposition remained at a high levelof $22 million, net of overdraft.Investment in plant and equip-ment was $6.9 million, upconsiderably on the previousyear’s $3.7 million.

The after tax return on average shareholders’funds was 30%, the same as in 2002.

The Company increased its dividend payoutto 50% of after tax earnings, which resultedin a fully tax imputed dividend of 95 cents pershare, compared with 63 cents a share for 2002.

In summary the highlights of the year’sperformance were:

• Total operating revenue was $242 million,up 12%

• Trading profit before tax was $17.5 million,up 16%

• After tax profit was $11.6 millon, up 20%

• Shareholders’ Funds increased to $41million, up 15%

• Dividends of 95 cents were paid for the year,up 51%

DirectorsJ. W. Holdsworth (Chairman)J. R. AllenC. D. BoyceJ. C. HagenP. M. HargreavesS. L. MathesonF. N. Stephenson

ManagementF. N. StephensonExecutive Chairman, Datacom NZ

M. C. BrowneManaging Director, Australia/SE Asia

SecretaryR.A. Keall

AuditorErnst & Young

SolicitorsKensington SwanDuncan Cotterill

BankersThe National Bank of New ZealandCitibankNational Australia Bank

Registered OfficeLevel 9, South Tower68 - 86 Jervois QuayPO Box 2063WellingtonPh: (04) 460 1500Fax: (04) 460 1511Website: www.datacom.co.nz

Datacom Group Limited

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2003 2002$000 $000

Revenue 241,638 215,565

Net Surplus Before Tax 17,531 15,120

Tax 5,932 5,380

Net Surplus After Tax 11,599 9,740

Total Assets 85,504 81,206

Shareholders’ Funds 40,728 35,473

Return on Average Shareholders’ Funds 30% 30 %

Earnings Per Share $1.80 $1.51

Net Asset Backing Per Share $6.32 $5.50


For the year ended 31 March 2003

5

DividendsDividends of 95 cents per share were providedfor during the year. Interim dividends of 30cents each were paid on 6 September 2002and 16 December 2002. A final dividendof 35 cents was paid on 1 May 2003.

DirectorsMessrs J. W. Holdsworth and J. C. Hagen retireby rotation and, being eligible, offer themselvesfor re-election. Mr E. Toime retired from theBoard in March 2003. The Board acknowledgeshis contribution to the Group.

AuditorIt is proposed the auditor, Ernst & Young,continue in office in accordance with Section200 (1) of the Companies Act 1993.

DisclosuresThe shareholders of the company have exercisedtheir right under Section 211 (3) of the 1993Companies Act and unanimously agreed that

Directors’ Report

this Annual Report not comply with paragraphsa) and e) to (g) of Section 211 (1) of the Actfor the year ended 31 March 2003.

AppreciationDirectors would like to pass on their thanksto all staff for their contributions in continuingto deliver quality services to our clients, andfor the achievement of another successful yearfor the Group.

For and on behalf of the Board.

J. W. HoldsworthChairmanDatacom Group Limited

4

Financial Summary

Datacom Annual Report / www.datacom.co.nz 7

Systems & ServicesOn the systems integration and developmentside, customers like NZ Courts, ASB, Foodstuffs,Air NZ, and Ministry of Education are modelsof using IT to achieve their goals. As developers,DNZ brings to bear the experience of buildingcomplex systems and the frameworks that shortendevelopment time.

Just as important, the Datacom teams have asteady way of working with years of companyexperience built into their practices.

These days, running systems is getting to beas big a concern as building or assemblingthem. With organisations counting on 100%availability and security, and handling veryhigh peak loadings, the platforms are oftenextraordinarily refined. They are expensiveto maintain and run, and for most end-usersimpossibly so without the extreme efficienciesof scale and scope (and wave after wave oftechnical support) only afforded by thededicated IT services firm.

Organisations like Reserve Bank, FletcherBuilding, NGC, TVNZ, NZ Customs, NZ Post,NZ Blood Services, CYFS, CONZULSYSLibraries, and the NZ Government Portal relyon Datacom to help run their systems.

Business process outsourcing is a sector whichresponds to sharing of resources, and to theagility and business continuity imperatives.

The payroll business continues to grow, andwith a new help centre in Wellington (twinningthe existing Auckland one) other services nowoffered include banking and ticketing andPeoplesoft-based applications.

Datacom New ZealandDatacom champions cost-benefit computingas against product-driven approaches. As aconsequence, customers have avoided the excessesof the past few years and their IT spend is inproportion with their needs. That has meantthey have pressed on through 2002/03,extending existing systems and building newones, using light-weight IT to gear up theirorganisations. Which resulted in a good yearfor DNZ.

Head count has increased during the year by170 to 1,042 staff-members (all full-time),including 300 developers plus 300 systemsmanagers, and 200 technical specialists plus200 help centre people.

The business mix stays the same with 25%systems development and integration, 50%systems management/outsourcing/support/hosting (with secure high-availability datacentres in Auckland and Wellington - plusChristchurch and Sydney), and 25% businessprocess outsourcing including payroll andticketing services.

Company Report

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Strategy & PracticeMany organisations are now spending twicewhat they should on IT (as much as 8-12% ofrevenue), the unreasonable result of a lot ofindividually reasonable decisions (fire-walls,management tools, application servers,databases, modeling tools, storage arrays,broad-band networks, continuity arrangementsand ambitious packaged ‘solutions’).

What is overlooked is that effective andeconomical deployment of IT is about strategyand architecture and the policy and practiceswith which they are deployed. It is the globalperspective and not the individual decisionswhich make the difference.

DNZ brings an understanding of how IT maybe used to advantage, plus the know-how (fromhaving done it repeatedly) to actually deliver.That is why IT consulting has moved fromivory tower firms to build/run practitioners.

On the implementation side, Datacom believesin customer-agility - meaning stay with mix-and-match standards, do not buy when you canlease, implement incrementally, and get valuefrom relating systems and data stores. Andabove all, it means focusing on the cost-benefitequation and delivering bottom-line (not justIT) results rapidly, and keeping momentum andbenefits flowing.

Datacom Annual Report / www.datacom.co.nz 98

Datacom InternationalDuring the last financial year Datacom inAustralia has focused specifically on expandingboth its customer contact services and systemsbusinesses. This has resulted in an increase inrevenues from $35 million to $46 million, andan increased head count by 106, to 475 staffmembers.

Datacom Systems Pty completed its third yearof operations with strong growth though a realfocus on the areas of the operation that hadshown the most promise, and secured a numberof new accounts including Manpower, VisitorServices Agency, Goulburn-Murray WaterAuthority, Aventis Pharma and MacquarieUniversity. The net effect was a higher level ofutilisation across all areas, resulting in revenuegrowth in Systems of 80% for the year.

Further investments were made in the Data Centreinfrastructure and the increasing number of newclients attest to the competitive positioning ofthis facility.

Site Services which provides a combinationof remote and on-site support outsourced ITservices, has had an extremely successful year,with a number of new contracts, supportinglarge-scale clients, within environments thathave become increasingly complex from atechnical and project perspective. Importantly,this expansion has been in both the Corporateand Government arenas.

In June, Datacom Financial Services wasestablished being a 51% Datacom, 49% Dun& Bradstreet joint venture based in Melbourne,focusing on the financial services call centremarket. Their year end result was in line with

expectations, trading in a cash neutral positionand having built a promising new businesspipeline.

The other major activity was the consolidationof Datacom Customer Contact with ConnectInteractive (a former competitor), to formDatacom Connect Pty. Datacom holds 70%of the combined operation with the formerConnect shareholders retaining 30%.

Both companies shared a number of majorcommon customers, a focus on similarindustries, yet had different but complementaryskills, which have been combined to producecost savings and to represent a robust andcompetitive company in this market.

The consolidation with Connect has resulted in a relocation to a new building, which alsocoincided with the end of the existing NorthRyde facility lease. The move constituted asignificant investment for the business and willbe completed early in the new financial year.

Datacom Asia continued its regional consolidationconcentrating the operation around a deliveryhub based in Kuala Lumpur, Malaysia.

This process is now complete and the operationincreasingly finds itself catering to the demandsof Datacom customers based out of Australasia,who seek a cost effective high quality servicewithin the region. The Asian presence remainsimportant as the trend continues towardsoutsourcing to lower cost Call Centre locations.

M. C. BrowneManaging DirectorAustralia/SE Asia

“ The goal is to make doingbusiness a pleasure, with astraight-forward approach...”

Outsourcing and EngagementsThe common thread in all this is that Datacomaims to deliver reliability, performance andeconomy, based on an understated hands-onapproach and the inestimable IT benefits ofscale and scope.

The deliverable is a ‘company’ one, basedon communities of practice as interpretedand enriched by individual flair. The goal isto make doing business a pleasure, with astraight-forward approach, exemplified inthe DNZ outsourcing recipe:

1. An open exit clause, so the engagementis voluntary

2. An agreed planning horizon and regime(e.g. monthly and quarterly review)

3. Full (on-line) disclosure of P&L andKPI so informed discussion continues

4. Third-party products and services passedthrough at net cost

5. Some form of shared incentive

This provides for a voluntary association andthe contents (and price and SLAs) of theoutsource can change smoothly from month-to-month.

The engagement is effectively a shifting bundleof services, matching customer requirements allalong the way.

There is little need for brittle scope documentsand constant variations, or SLAs and pricingwhich go out of date within weeks of agreement(after years of negotiation). This is what makesIT agile, projects and services effective, anddelivers results straight to the bottom line.

F. N. StephensonExecutive ChairmanDatacom NZ

Company Report


Consolidated Parent Company

2003 2002 2003 2002Notes $000 $000 $000 $000

Net Surplus Attributable to:

Company 11,479 9,583 4,502 5,844

Minority interest 120 157 - -

Net surplus for the year 11,599 9,740 4,502 5,844

Other Recognised Revenue and Expenses

Foreign currency translation reserve 7 (191) 92 - -

Transfer of Singapore branch equity to parent - - - (491)

Total recognised revenues and expensesfor the year 11,408 9,832 4,502 5,353

Contributions from OwnersEmployee shares issued during the year - 683 - 683

Distribution to Owners

Dividends on ordinary/employee shares 11 (6,116) (4,060) (6,116) (4,060)

Distributions to minority shareholders (53) - - -

Other MovementsIncrease/(decrease) in minority interest resulting

from acquisition of subsidiary 16 84 - -

Total movements in equity 5,255 6,539 (1,614) 1,976

Equity at the beginning of the year 35,473 28,934 22,244 20,268

Equity at the end of the year 40,728 35,473 20,630 22,244

Datacom Group LimitedStatement of Movements in EquityFor the year ended 31 March 2003

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11


2003 2002 2003 2002Notes $000 $000 $000 $000

Operating revenue 2 241,638 215,565 5,975 8,939

Operating surplus before tax 3 17,531 15,120 4,590 5,833

Income tax expense (benefit) 4 5,932 5,380 88 (11)

Operating surplus after tax 11,599 9,740 4,502 5,844

Net surplus attributable to minority interest 120 157 - -

Net surplus attributable tothe shareholders of the company 11,479 9,583 4,502 5,844

Statement of Financial PerformanceFor the year ended 31 March 2003

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10

The accompanying notes form part of and are to be readin conjunction with these financial statements.*





2003 2002 2003 2002Notes $000 $000 $000 $000

Current Liabilities

Bank overdraft 18 3,014 1,332 - -

Payables 19 28,152 30,570 20,384 24,883

Employee entitlements 7,924 6,807 5 -

Dividends payable 2,255 1,160 2,255 1,160

Current portion of term liabilities 20 1,544 2,367 - 458

Total current liabilities 42,889 42,236 22,644 26,501

Net Working Capital 21,854 20,062 12,656 15,061

Non Current LiabilitiesTerm liabilities 20 1,887 3,497 - 1,669

Total non-current liabilities 1,887 3,497 - 1,669

Net Assets 40,728 35,473 20,630 22,244

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2003 2002 2003 2002Notes $000 $000 $000 $000

Equity

Attributable to parent company shareholders 12 40,295 35,123 20,630 22,244

Attributable to minority interest 433 350 - -

Total equity 40,728 35,473 20,630 22,244

Represented by:

Non Current Assets

Property, plant and equipment 14 14,783 12,614 5,609 5,713

Investment in subsidiaries - - 920 916

Employee share scheme advance 15 2,206 2,714 1,446 2,204

Deferred taxation 5 2,332 1,752 (1) 19

Finance lease receivables 17 1,440 1,828 - -

Total non-current assets 20,761 18,908 7,974 8,852

Current Assets

Cash 24,818 22,074 5,988 4,978

Receivables and prepayments 16 34,647 34,728 29,312 36,584

Inventories 1,772 2,438 - -

Work in progress 1,971 1,385 - -

Finance lease receivables 17 1,535 1,673 - -

Total current assets 64,743 62,298 35,300 41,562

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Statement of Financial PositionAs at 31 March 2003

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On behalf of the Board

J. W. Holdsworth Dated: 3rd July 2003Chariman

J. C. Hagen Dated: 3rd July 2003Director




2003 2002 2003 2002$000 $000 $000 $000

Cash Flows from Financing Activities

Cash was Provided from:

Repayment of loan to subsidiaries - - 3,659 151

Loan from minority shareholder 435 - - -

Total cash provided 435 - 3,659 151

Cash was Disbursed to:

Repayments of borrowings 2,340 524 2,127 428

Dividends paid to minority interests 53 - - -

Dividends paid 5,021 3,219 5,021 3,219

Total cash disbursed 7,414 3,743 7,148 3,647

Net Cash Flows from Financing Activities (6,979) (3,743) (3,489) (3,496)

Net increase (decrease) in cash held 1,613 5,715 1,096 2,829

Cash at the beginning of the year 20,742 14,924 4,978 2,149

Effect of exchange rate change on foreign currency balances (551) 103 (86) -

Cash at the end of the year 21,804 20,742 5,988 4,978

Comprising:

Cash at bank 24,818 22,074 5,988 4,978

Bank overdraft (3,014) (1,332) - -

21,804 20,742 5,988 4,978

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Statement of Cash FlowsFor the year ended 31 March 2003

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2003 2002 2003 2002Notes $000 $000 $000 $000

Cash Flows from Operating Activities


Receipts from customers 236,220 208,094 1,936 812

Rent 759 316 693 693

Interest received 1,450 715 348 274

Dividends received - - 2,959 6,683

Other - 1 323 1

Total cash provided 238,429 209,126 6,259 8,463


Payments to suppliers and employees 210,730 185,630 2,570 1,555

Interest paid 541 278 142 198

Rent/operating leases paid 6,615 5,790 - 11

Taxation paid 5,936 4,749 - 485

223,822 196,447 2,712 2,249

Total cash disbursed

Net Cash Flows from Operating Activities 26 14,607 12,679 3,547 6,214

Cash Flows from Investing Activities


Sale of property, plant and equipment 123 23 - 1

Repayment of share scheme loan 751 472 1,081 472

Total cash provided 874 495 1,081 473


Purchase of property, plant and equipment 6,889 3,393 43 39

Issue of share scheme loan - 323 - 323

Total cash disbursed 6,889 3,716 43 362

Net Cash Flows from Investing Activities (6,015) (3,221) 1,038 111



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Notes to and forming part of the financial statements

1. Statement of Accounting Policies

Reporting EntityDatacom Group Limited is a company registered under the Companies Act 1993. The financialstatements of the Company and the Group have been prepared in accordance with the CompaniesAct 1993 and the Financial Reporting Act 1993.

The Company and its subsidiaries comprise the Datacom Group.

Differential ReportingThe Group is a qualifying entity for Differential Reporting by virtue of the fact that is has nopublic accountability and all shareholders or their nominees are on the Board of the Group.

Differential reporting exemptions have been applied to SSAP-22 Transactions with RelatedParties, SSAP-23 Financial Reporting for Segments and SSAP-30 Reporting Share OwnershipArrangements.

Measurement BaseThe accounting principles recognised as appropriate for the measurement and reporting offinancial performance and financial position on a historical cost basis are followed by theGroup.

Specific Accounting PoliciesThe following specific accounting policies which materially affect the measurement offinancial performance and the financial position have been applied.

a) Basis of ConsolidationSubsidiaries are entities in which the Company has the capacity to determine the financingand operating policies and from which it has an entitlement to significant ownership benefits.

The consolidated financial statements, which include the parent company and its subsidiaries,have been prepared using the purchase method. All significant intercompany transactionshave been eliminated in preparing the consolidated statements. In the company's financialstatement, investments in subsidiaries are stated at their cost less provision for impairment.

b) Property, Plant and EquipmentAll items of property, plant and equipment are stated at cost, including costs directlyattributable to bringing the asset to its working condition.

For the year ended 31 March 2003

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Any expenditure that increases the economic benefits derived from an asset is capitalised.Expenditure on repairs and maintenance that does not increase the economic benefits isexpensed in the period it occurs.

All items are depreciated on a straight line basis. Expected useful lives are:

Furniture and Fittings ..................... 3 - 10 yearsLeasehold Improvements ............... 2 - 10 yearsComputers ........................................ 2 - 5 yearsPlant and Equipment ..................... 3 - 10 yearsMotor Vehicles ................................. 3 - 5 yearsBuildings ............................................. 40 yearsLand ........................................ Not depreciated

When an item of property, plant or equipment is disposed of, the difference between netdisposal proceeds and the carrying amount is recognised as a gain or loss in the statementof financial performance.

c) ReceivablesReceivables are valued at net realisable value, after due allowance has been made fordoubtful debts.

d) TaxationThe income tax expense charged to the statement of financial performance includes boththe current year's provision and the income tax effect of timing differences calculatedusing the liability method.

Tax effect accounting is applied on a comprehensive basis to all timing differences. Adebit balance in the deferred tax account, arising from timing differences or income taxbenefits from income tax losses, is only recognised if there is virtual certainty of realisation.

e) InventoriesTrading inventories are stated at the lower of cost and net realisable value, determined ona specific identification basis.

f) LeasesFinance leases are stated at cost and are net of any unearned income and GST applicableto the investments. Interest is calculated at between 7.65-9.04% per annum and chargedmonthly. They run for between 2-3 years.

The majority of the leases are matched off by back-to-back leases to clients. Both sidesof the leases are non-cancellable.



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g) Foreign CurrenciesTransactions in foreign currencies are converted at the New Zealand rate of exchangeruling at the date of the transaction. Short-term transactions covered by foreign currencyforward exchange contracts are measured and reported at the forward rates specified inthose contracts.

At balance date, foreign monetary assets and liabilities including those of integrated foreignoperations are translated at the closing rate, and exchange variations arising from thesetranslations are recognised in the statement of financial performance. The statement offinancial performance is translated at a rate approximating the rate as at transaction date.

The assets and liabilities of independent foreign operations are translated at the closingrate. Foreign currency exchange differences are recognised in the foreign currencytranslation reserve.

h) Financial InstrumentsFinancial Instruments recognised in the statement of financial position include cashbalances, bank overdrafts, receivables, payables, investments and loans to others, andterm borrowings. In addition, members of the Datacom Group are party to financialinstruments with off-balance sheet risk to meet financing needs and to reduce exposureto fluctuations in foreign currency exchange rates. These financial instruments includeguarantees of other's bank account overdraft facilities and foreign currency forwardexchange contracts.

The Group enters into foreign currency forward exchange contracts to hedge tradingtransactions. Gains and losses on contracts which hedge specific short-term foreigncurrency denominated transactions are recognised as a component of the relatedtransaction in the period in which the transaction is completed. Any financial instrumentsthat do not qualify as hedges are stated at market value and any gain or loss is recognisedin the statement of financial performance.

The Group is exposed to changes in overdraft and deposit interest rates. Due to the lowlevel of such risk no cover is taken. The Group further minimises its credit exposure bylimiting the amount of funds placed with any one financial institution at any one time.

i) Cash FlowsFor the purpose of the statement of cash flows, cash includes cash on hand, deposits heldat call with banks and investments in money market instruments, net of bank overdrafts,which are used as part of day-to-day cash management.

Notes to and forming part of the financial statements contd

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j) Employee EntitlementsA liability for annual leave and long service leave is accrued and recognised in thestatement of financial position. The liability is equal to the present value of the estimatedfuture cash outflows as a result of employee services provided at balance date.

k) Changes in Accounting PoliciesCertain figures for the 2002 year have been reclassified to conform to the currentyear's presentation.

There have been no changes in accounting policies during the year. All policies havebeen applied on bases consistent with those in previous years.


2003 2002 2003 2002$000 $000 $000 $000

2. Operating Revenue

Sales 239,096 214,487 499 507

Dividend revenue - - 4,087 7,026

Interest revenue 1,439 705 353 340

Rent revenue 759 - 693 693

Other revenue 344 373 343 373

Total operating revenue 241,638 215,565 5,975 8,939

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2003 2002 2003 2002$000 $000 $000 $000

4. Income Tax Expense (Benefit)

Operating surplus before taxation 17,531 15,120 4,590 5,833

Prima facie income tax 5,785 4,990 1,515 1,925

Add (Subtract) Taxation Effect of Permanent Differences:

Non-deductible legal expenses 12 - 2 -

Other non-deductible expenses 318 158 47 60

Non-taxable dividends - - (1,349) (2,319)

Other non-taxable income (113) (102) (113) (120)

Deferred tax asset/(liability) not recognised (7) 145 (14) (17)

Recognition of tax losses not previously recognised - (350) - -

Future income tax benefit not recognised 141 296 - -

Loan forgiven - - - 460

Prior period adjustment (153) 294 - -

Tax rate difference (51) (51) - -

Taxation on surplus 5,932 5,380 88 (11)

The Income Tax Expense (Benefit) is Represented by:

Current Tax 6,512 5,602 68 (73)

Deferred Tax (580) (222) 20 62

5,932 5,380 88 (11)

There are tax losses available to be carried forward against profits in overseas subsidiaries of$296,393 (2002: $1,248,644). The benefit of these has not been recognised in these financialstatements due to the uncertainty of their recoverability in the immediate future. Tax losses arisingin each jurisdiction can only be utilised against future profits arising in the same jurisdiction.

The Group has not recognised deferred taxation liabilities on cumulative timing differences of$232,930 (2002:$925,625 - assets) as these are not expected to reverse in the foreseeable future.The tax effect of timing differences not recognised is $70,499 (2002:$277,845).


21


2003 2002 2003 2002$000 $000 $000 $000

3. Operating Expenses

Operating Surplus Before Taxation Includes

Audit fees 192 149 20 14

Bad debts written off 49 207 - 1,511

Change in provision for doubtful debts (133) 71 - -

Depreciation:

- Furniture & fittings 326 537 10 10

- Leasehold improvements 710 810 - -

- Computers 2,591 2,804 4 3

- Plant & equipment 949 645 4 3

- Motor vehicles 2 2 2 2

- Buildings 118 117 118 117

Directors' fees 150 128 80 80

Donations 33 17 10 1

Foreign currency exchange losses 494 80 63 6

Interest:

- Mortgages and other borrowings 225 280 148 383

- Finance charges on finance leases 317 433 - -

Loss on sale of property, plant and equipment 35 29 9 8

Rental and operating lease costs 6,616 5,791 - -

Amounts Paid and Payable to the Auditors for :

Auditing the Financial Statements

Company auditor 175 119 20 14

Other auditors 17 30 - -

Other ServicesCompany auditor 284 99 89 82

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23


2003 2002 2003 2002$000 $000 $000 $000

5. Deferred Tax Asset (Liability)

Balance at the beginning of the year 1,752 1,445 19 92

Transfer to (from) statement of financial performance 580 222 (20) (62)

Prior period adjustments - 85 - (11)

Balance at the end of the year 2,332 1,752 (1) 19

6. Imputation Credit Account

Balance at the beginning of the year 3,771 2,405

Imputation credits attached to dividends received during the year - 3,382

Imputation credits attached to dividends paid during the year (2,476) (1,585)

Income tax payments (refunds) and transfers during the year 6,324 (431)

Balance at the end of the year 7,619 3,771

At Balance Date the Imputation Credits Available to the Shareholders Were:

Through direct shareholding in the company 7,619 3,771

Through indirect interests in subsidiaries 5,879 6,524

13,498 10,295

7. Reserves

Foreign Currency Translation Reserve

Balance at the beginning of the year 66 (26) - -

Movement during the year (191) 92 - -

Balance at the end of the year (125) 66 - -

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Group & Company Group & Company

2003 2003 2002 2002

Number Value Number Value000 $000 000 $000

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8. Share Capital

Ordinary shares 6,070 8,084 6,070 8,084

Employee shares 375 2,153 375 2,153

Total share capital 6,445 10,237 6,445 10,237

The 2002 figures were restated to reflect a prior year adjustment relating to the re-purchaseof shares in 1999 of $1,042,364.

Each ordinary share in the Company confers on the holder:

a) The right to vote on any resolution, including any resolution to:

(i) Appoint or remove a Director or auditor;

(ii) Alter the constitution;

(iii) Approve a major transaction;

(iv) Approve an amalgamation of the Company under Section 221;

(v) Put the Company into liquidation;

b) The right to an equal share in dividends authorised by the Board; and

c) The right to an equal share in the distribution of the surplus assets of the Companyon winding up.

Employee SharesThese shares are non-voting except as between the holders of Employee Class Shares ina vote pursuant to section 117 of the Companies Act 1993 where the holders of EmployeeClass Shares are entitled to vote as an Interest Group. In those circumstances each sharecarries a vote of 1/375,000.

Each employee share in the Company confers on the holder:

a) The right to an equal share in the dividends authorised by the Board; and

b) The right to an equal share in the distribution of the surplus assets of the company.



10. Acquisition and Disposal of SubsidiariesIn July 2002 Datacom Investments Pty Ltd, a subsidiary of the Group, acquired 51% of the100 shares of Datacom Financial Services Pty Ltd. Datacom Financial Services was a newcompany which did not hold any assets at that time. It now provides call centres services.

In January 2003 Datacom Investment Pty Ltd also acquired 70% of the 1,272,209 sharesof Datacom Connect Pty Ltd. Datacom Connect Pty is also a new company which took overassets and liabilities from Datacom Customer Contact Pty Ltd in return for the shares issued.Datacom Customer Contact Pty Ltd is no longer trading. Datacom Connect Pty Ltd has a largecontract to provide a range of services to Microsoft in Australia.

For the reasons described, Datacom Financial Services Pty Ltd and Datacom Connect Pty Ltdbecame subsidiaries of Datacom Investments Pty Ltd, and therefore the Group, as from thedate of acquisition.


2003 2002 2003 2002$000 $000 $000 $000

11. Distribution to Owners

Interim Distributions:

Dividend on ordinary shares 3,636 2,731 3,636 2,731

Dividend on employee shares 225 169 225 169

Final Distribution:

Dividend on ordinary shares 2,124 1,092 2,124 1,092

Dividend on employee shares 131 68 131 68

Total distributions to owners 6,116 4,060 6,116 4,060

25

Percent Held

2003 2002

9. Investments in Subsidiaries

Significant Subsidiaries:

Datacom Systems Limited 100% 100%

Datacom Systems (Wellington) Limited 100% 100%

Datacom Engineering Services Limited 100% 100%

New Technologies Limited 100% 100%

Datacom Employer Services Limited 100% 100%

Datacom Services Limited 100% 100%

Interconnect Limited 100% 100%

DTL Finance Limited 100% 100%

Datacom Australia Holdings Pty Limited 88% 92%

Subsidiaries:

Datacom Investments Pty Ltd 100% 100%

Subsidiaries:

Datacom Systems Pty Ltd 100% 100%

Datacom Customer Contact Pty Ltd 100% 100%

Datacom Financial Services Pty Ltd 51% 0%

Datacom Connect Pty Ltd 70% 0%

Datacom South East Asia (Hong Kong) Limited 100% 100%

Datacom South East Asia (Malaysia) Sdn Bhd 100% 100%

Subsidiaries:

Datacom IT Services South East Asia Pte Limited 100% 100%

Datacom South East Asia Philippines Inc 100% 100%

Datacom South East Asia (Thailand) Limited 100% 100%

All subsidiaries have a balance date of 31 March and are involved in various aspectsin the provision of computer services.

Each company was incorporated in the country it is situated in.

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2003 2002 2003 2002$000 $000 $000 $000

14. Property, Plant and Equipment

Furniture & fittings at cost 4,180 4,124 59 59

Accumulated depreciation (3,090) (3,326) (26) (16)

1,090 798 33 43

Leasehold improvements at cost 6,085 5,896 - -

Accumulated depreciation (4,902) (4,634) - -

1,183 1,262 - -

Computers at cost 23,627 23,901 42 44


4,110 3,764 7 11

Leased computers at cost 381 425 - -

Accumulated depreciation (286) (234) - -

95 191 - -

Plant & equipment at cost 6,190 5,885 27 27


2,721 948 4 8

Motor vehicles at cost 22 53 22 22

Accumulated depreciation (7) (35) (7) (4)

15 18 15 18

Leased motor vehicles at cost 26 - - -

Accumulated depreciation (7) - - -

19 - - -

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2003 2002 2003 2002$000 $000 $000 $000

12. Total Equity

Share capital 10,237 10,237 10,237 10,237

Foreign currency translation reserve (125) 66 - -

Accumulated surplus 30,183 24,820 10,393 12,007

40,295 35,123 20,630 22,244

Equity attributable to minority shareholdersof the group 433 350 - -

Total equity 40,728 35,473 20,630 22,244

13. Accumulated Surplus

Balance at the beginning of the year 24,820 19,297 12,007 10,714

Net surplus (deficit) attributable to the shareholdersof the company 11,479 9,583 4,502 5,844

Transfer of Singapore branch equity to parent - - - (491)

Distribution to owners (6,116) (4,060) (6,116) (4,060)

Balance at end of the year 30,183 24,820 10,393 12,007

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26


15. Employee Share Schemes

Datacom Group Limited Share SchemeThe Group has advanced funds to enable the purchase of shares in Datacom Group Limitedthrough transfer of shares from other shareholders or by issue of new shares. The beneficialowners in the shares are nominated employees. Each advance is repayable over a maximumof ten years with all dividends on applicable shares being appropriated as a reduction of theadvance. No interest is charged to the Scheme.

The share price at which shares are allocated is determined by the Group Directors havingregard to any recent independent valuation, any recent share transactions or any events orinformation that has a material effect on the value of the Shares. The Group Directors havefull control over the appointment and removal of Trustees of the Scheme.

As at 31 March 2003 the Scheme held 641,800 (10.57%) Ordinary shares (2002:715,817-11.79%) of which 15,625 (2002:7,817) were not allocated. It held 375,000 (100%) Employeeshares (2002:375,000-100%) of which all were allocated (2002:13,500 unallocated).

Advances to directors under this Scheme totalled $175,996 (2002:$358,717).

Datacom Holdings Pty Ltd Share SchemeIn Australia the Group has advanced funds to enable the purchase of shares in DatacomAustralia Holdings Pty Limited. The owners of the shares are nominated employees. Eachadvance is repayable over a maximum of five years with all dividends on applicable sharesbeing appropriated as a reduction of the advance. No interest is charged to the Scheme.

The share price at which shares are allocated is determined by the Group Directors havingregard to any recent independent valuation, any recent share transactions or any events orinformation that has a material effect on the value of the Shares. The Group Directors havefull control over the rules and terms of the Scheme.

At 31 March 2003 the Scheme held 1,219,473 (11.58%) Ordinary shares (2002:876,315-8.33%),all of which have been allocated.

Advances to directors under this Scheme totalled $423,219 (2002:$190,870).


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2003 2002 2003 2002$000 $000 $000 $000

14. Property, Plant and Equipment contd

Buildings at cost 4,578 4,544 4,578 4,544

Accumulated depreciation (764) (647) (764) (647)

3,814 3,897 3,814 3,897

Land at cost 1,736 1,736 1,736 1,736

Total net book value 14,783 12,614 5,609 5,713

The discount on acquisition on purchase of Datacom Connect Pty Limited has been applied toreduce the fair value of Fixed Assets as follows:

Furniture & fittings 25

Computer equipment 23

Plant & equipment 91

Inventory 73

Total adjustment to fair value 212

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2003 2002 2003 2002$000 $000 $000 $000

16. Receivables and Prepayments

Trade receivables 31,994 31,873 1 -

Receivables from directors - 25 - -

Sundry receivables 592 437 54 8

Dividends receivable - - 1,129 -

Taxation refundable - - 6 397

Inter-company receivables - - 28,045 35,799

Prepayments 2,061 2,393 77 380

Total receivables and prepayments 34,647 34,728 29,312 36,584

17. Finance Lease Receivables

Current 1,771 1,909 - -

Term 1,554 1,964 - -

Gross finance leases 3,325 3,873 - -

Less unearned income 350 372 - -

Net finance lease receivables 2,975 3,501 - -

Reconciled to:

Current receivables 1,535 1,673 - -

Term portion 1,440 1,828 - -

2,975 3,501 - -

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2003 2002 2003 2002$000 $000 $000 $000

18. Bank Balances

Bank overdraft 3,014 1,332 - -

The $3,014,077 relates to Australian operations and is secured through a Group guarantee forup to AUD 4,100,000. The interest rate charge was 7.75% (2002: 7.25%). Interest for creditbalances was 1.4% (2002:1.15%).

In New Zealand any overdraft balance during the year incurred 10.45% (2002: 9.45%). Intereston credit balances was between 4.01-6.0% (2002: 3.25-5.7%) for NZD investments. During2003 the parent had AUD term deposits which earned interest @ 3.5%.

19. Payables

Trade payables 17,025 21,116 97 47

Sundry payable and accruals 9,902 8,587 18 51

Taxation payable 778 603 - -

Intercompany payables - - 20,195 24,657

Related parties 447 264 74 128

Total payables 28,152 30,570 20,384 24,883

Sundry payables and accruals include provisions as reflected in note 21.

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3130

Datacom Group LimitedNotes to and forming part of the financial statements contd



Unused AmountOpening Amount Reversed During New Closing

$000 Balance Paid the Current Period Provision Balance

21. Provisions

Group 2003

Restructuring 176 - 176 1,022 1,022

Accounting systems replacement 90 - 90 - -

Contract losses 121 - 51 - 70

Foreign exchange cover 85 - 85 - -

Vacant space - New Zealand - - - 245 245

Vacant space - Australia - - - 903 903

Total 472 - 402 2,170 2,240

Parent 2003The Parent did not have any provisons (2002: $20,000).

Provisions for known redundancies have been made because a large customer has issueda request for proposal and has indicated that there was a strong possibility of all or mostof the operations being transferred to an overseas vendor, who will be offering substantiallyreduced pricing. Based on the expiry date of Datacom's contract with the customer, a cost of$947K could be incurred between October 2003 and March 2004.

A provision has been made to cover probable future losses arising from large developmentprojects in progress at balance date. The estimate has been determined based at a conservativeestimate of one person’s effort for 10 months at a cost of $7,000pp/mth. This provision iscontinuously reviewed and adjusted as appropriate.

A provision has been recognised to cover vacant office space in Wellington and Auckland.The provision has been estimated based on the unoccupied floor space over the period duringwhich the area is expected to be vacant. This floor space is expected to be fully occupied bythe end of the next financial year as the business expands.

In December 2002 the NSW State Government acquired part of the current Datacom Sydneypremises for the construction of Parramatta Rail Link. This resulted in a management decisionto relocate and sign a lease for new premises, rendering the existing premises vacant. Provisionshave been made for rent and outgoings relating to the vacant period, relocation andredecoration expenses.


2003 2002 2003 2002$000 $000 $000 $000

20. Term Liabilities

Bank loans - 2,127 - 2,127

Loan from minority shareholder 435 - - -

Lease liability 2,996 3,737 - -

3,431 5,864 - 2,127

Less: Current Portion

Bank loans - 458 - 458

Lease liability 1,544 1,909 - -

1,544 2,367 - 458

Total term liabilities 1,887 3,497 - 1,669

The finance leases are secured over the assets to which they relate and attract an interest rateof between 7.65-9.04% . The loan from the minority shareholder incurs interest of 4% and hasno date of repayment.

Repayable as Follows: Bank Loans Lease Liabilities

2003 2002 2003 2002$000 $000 $000 $000

Less than 1 year - 458 1,544 1,909

Between 1-2 years - 487 1,232 1,107

Between 2-5 years - 1,182 220 721

Greater than 5 years - - - -

Total - 2,127 2,996 3,737

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24. Transactions with Related PartiesThe Company paid consultancy fees to Evander Management Ltd, a company in whichMr J.W. Holdsworth, a director, has an interest. The fees were charged on normal termsand conditions.

The Group has several transactions with New Zealand Post Limited, a shareholder ofDatacom Group Limited, including the lease of premises, and other transactions in thenormal course of business.


2003 2002 2003 2002$000 $000 $000 $000

25. Financial Instruments

Credit Risk

Maximum exposures to credit risk at balance date are:

Bank balances 24,818 22,074 5,988 4,978

Receivables 34,647 34,728 138 785

59,465 56,802 6,126 5,763

The above maximum exposures are net of any recognised provisions for losses on thesefinancial instruments. No collateral is held on the above amounts.

General Exposure to Credit RiskTo the extent Datacom Group has a receivable from another party there is a credit risk in theevent of non-performance by that counterparty. Financial instruments which potentially subjectDatacom Group to credit risk principally consist of bank balances, receivables, foreigncurrency forward exchange contracts and financial guarantees.

Datacom Group continuously monitors the credit quality of the major financial institutions thatare the primary counterparties to its financial instruments and does not anticipate non-performanceby any of these counterparties.

Concentrations of Credit RiskDatacom Group's largest customer accounts for 11.3% (2002:12.3%) of total sales and 13.6%(2002:8.7%) of trade receivables at balance date. The Datacom Group does not have any othersignificant concentrations of credit risk.

Parent Company

2003 2002$000 $000

22. Contingent Liabilities

Guarantee of bank overdraft facilities for subsidiariesto a limit of: AUD 4,100 1,000

MYR 500 500

SGD 300 300

NZD 4,347 4,347

At balance date the amount of the bank overdraft soguaranteed was: AUD 2,772

These guarantees have been secured by short term deposits with Citibank New Zealand andAustralia to the value of $4,000,000.

23. Commitments

Capital CommitmentsThe company has capital commitments of $1,159,646 as at 31 March 2003. (2002 nil)


2003 2002 2003 2002$000 $000 $000 $000

Operating Lease Commitments

Lease Commitments UnderNon-cancellable Operating Leases:

Less than 1year 4,606 4,420 - -

Between 1-2 years 4,909 2,093 - -

Between 2-5 years 7,144 784 - -

Greater than 5 years 566 - - -

Total operating lease commitments 17,225 7,297 - -

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2003 2002 2003 2002$000 $000 $000 $000

26. Cash Flow Reconciliation

Reported surplus after taxation and before includingshare of retained surplus of associate: 11,599 9,740 4,502 5,844

Add (Less) Non-cash Items and Non-operating Items:

Depreciation 4,696 4,915 138 135

Movement in deferred taxation (580) (307) 20 62

Bad debts written off 49 207 - 1,511

Change in provision for doubtful debts (133) 71 - -

(Gain) loss on sale of investments/assets 35 29 9 8

Other 82 (259) (3,903) (1,687)

Movement in Working Capital:

Increase (decrease) in trade creditors (3,909) 4,923 49 (24)

Increase (decrease) in sundry payables andemployee entitlements 2,432 816 (78) (5)

Increase (decrease) taxation payable 175 1,253 391 (422)

(Increase) decrease inventory 666 98 - -

(Increase) decrease work in progress (586) (168) - -

(Increase) decrease receivables 81 (8,639) (873) (313)

Increase (decrease) in inter-company payables - 3,292 1,105

Net Cash Flows from Operating Activities 14,607 12,679 3,547 6,214

Currency RiskDatacom Group has exposure to foreign exchange risk as a result of transactions denominatedin foreign currencies, arising from normal trading activities. The currencies in which DatacomGroup primarily transacts are Australian and US dollars. Where exposures are certain it isDatacom Group's policy to hedge these risks as they arise.

Outstanding foreign exchange contracts at balance date totalled $306,769 (2002: $17,498).

Fair ValuesThe estimated fair value of foreign exchange contracts in 2003 is -$246 (2002:-$165).The carrying value for 2003 is nil (2002: nil). The fair values of all other financial instrumentsare equal to their carrying values.

At balance date the Group had the following outstanding balances in foreign currencies thatwere not hedged:


2003 2002 2003 2002$000 $000 $000 $000

Malaysian Ringgit Current assets 1,667 2,322 - -

Current liabilities (378) (799) - -

Singapore Dollar Current assets 185 352 - -


Hong Kong Dollar Current assets 2 4 - -


Philippine Peso Current assets 92 459 - -


Thai Baht Current assets 227 328 - -


Australian Dollar Current assets 16,362 10,695 - -

Current liabilities (15,357) (9,729) - -

Term liabilities (486) (162) - -

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3736



Auditor’s Report

Auditor’s Report

To the Shareholders of Datacom Group LimitedWe have audited the financial statements on pages 10 to 37. The financial statements provideinformation about the past financial performance of the company and group and their financialposition as at 31 March 2003. This information is stated in accordance with the accounting policiesset out on pages 16 to 19.

Directors’ ResponsibilitiesThe directors are responsible for the preparation of financial statements which comply withgenerally accepted accounting practice in New Zealand and give a true and fair view of the financialposition of the company and group as at 31 March 2003 and of their financial performance and cashflows for the year ended on that date.

Auditor’s ResponsibilitiesIt is our responsibility to express an independent opinion on the financial statements presentedby the directors and report our opinion to you.

Basis of OpinionAn audit includes examining, on a test basis, evidence relevant to the amounts and disclosuresin the financial statements. It also includes assessing:

• the significant estimates and judgements made by the directors in the preparation of thefinancial statements; and

• whether the accounting policies are appropriate to the circumstances of the companyand group, consistently applied and adequately disclosed.

We conducted our audit in accordance with generally accepted auditing standards in New Zealand.We planned and performed our audit so as to obtain all the information and explanations which weconsidered necessary in order to provide us with sufficient evidence to give reasonable assurancethat the financial statements are free from material misstatements, whether caused by fraud or error.In forming our opinion we also evaluated the overall adequacy of the presentation of informationin the financial statements.

Ernst & Young undertakes consulting projects and provides taxation advice to the company and group.

Chartered Accountants

3938

Unqualified OpinionWe have obtained all the information and explanations we have required.

In our opinion:

• proper accounting records have been kept by the company as far as appears from ourexamination of those records; and

• the financial statements on pages 10 to 37:

- comply with generally accepted accounting practice in New Zealand; and

- give a true and fair view of the financial position of the company and group as at 31March 2003 and their financial performance and cash flows for the year ended on that date.

Our audit was completed on 3 July 2003 and our unqualified opinion is expressed as at that date.

Wellington

Documents

3 Directors’ Report - Datacom · 2015-02-05 · creation of Datacom Connect, a call centre business, and the formation of a new joint venture company Datacom Financial Services