Annual Report 2006 - Datacom · 2015-02-05 · 6 Datacom Annual Report / Company Report Datacom New Zealand 2005/06 Thanks to the support of customers and staff, Datacom New Zealand’s

Annual Report 2006www.datacom.co.nz

Contents

3 Directors’ Report

6 Datacom – Company Report

12 Statement of Financial Performance

13 Statement of Movements in Equity

14 Statement of Financial Position

16 Statement of Cash Flows

18 Notes to and Forming Part of the Financial Statements

47 Auditor’s Report

Datacom Group Limited 1

‘The supplier of choice for

high performance systems

and services.’

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

Datacom Group Limited

Directors

J.W. Holdsworth (Chairman)

J.R. Allen

C.D. Boyce

J.C. Hagen

P.M. Hargreaves

S.L. Matheson

F.N. Stephenson

P.M. Schuyt

Management

F.N. Stephenson

Executive Chairman, Datacom NZ

M.C. Browne

Managing Director, Australia/SE Asia

Secretary

R.A. Keall

Auditor

Ernst & Young

Solicitors

Kensington Swan

Duncan Cotterill

Simpson Grierson

Bankers

The National Bank of New Zealand

ASB Bank

Citibank

National Australia Bank

Registered Office

Level 9, South Tower

68-86 Jervois Quay

PO Box 2063

Wellington

Ph: (04) 460 1500

Fax: (04) 460 1511

Website: www.datacom.co.nz

where the Melbourne data centre is based,

with these buildings being funded partly by

borrowings resulting in the Company having

an increased level of long-term debt on the

balance sheet.

In Australia, a Brisbane-based IT product and

services company, NetOptions Pty Ltd, was

acquired. This well-established company with

revenues of A$30 million and 50 staff provides

Datacom Australia with a solid base for

expansion into the fast-growing Queensland

market. Datacom has substantial operations

in Victoria, NSW and now Queensland.

Operations in all three locations –

New Zealand, Australia and Malaysia

– performed well, all recording

signifi cant growth with total

staff numbers up 10% to 2,001.

In New Zealand, staff numbers

grew by 125 to 1,285, with an

increase of 35 in Australia to 561

and 24 in Kuala Lumpur to 155.

In summary, the highlights of the

year’s performance were:

• Total operating revenue was

$357 million, up 17%

• Trading profi t before tax was

$32.7 million, up 28%

• After-tax profi t was $22.1 million,

up 28%

• Staff numbers 2,001, up 10%

• Total dividends paid $1.70 per share

Your directors are pleased to report that

Datacom Group had another successful year

in the period to 31 March 2006 with an

increase in revenue and profi t, consolidating

its position as a leading information

technology services company.

Total Revenue for the Group was $357

million, up 17% on the previous year’s $306

million. Of this total New Zealand contributed

$248 million (69% of total revenue) and

Australia/Asia $109 million (31%).

The Group’s exceptional earnings growth

continued in the year with net profi t before

tax at $32.7 million, up 28%, compared with

$25.6 million in 2005. The net profi t after

tax was $22.1 million, compared with the

previous year’s $17.2 million, up 28%.

This profi t represents a 40% return on

average shareholders’ funds.

The Group’s balance sheet remained strong,

with shareholders’ funds at $61 million, up

22% on the previous year’s $50.1 million.

The cash balance at the end of the year was

$21.5 million, up on last year’s $17 million.

The Group made a number of investments

during the year with capital expenditure of

$24.2 million. A major part of this was for the

purchase of two buildings and the upgrading

of data centres in New Zealand and Australia

to cope with the increased level of business.

The buildings purchased were Federal St,

headquarters of Datacom Systems Auckland,

and the GlobalCenter building in Melbourne,

Directors’ Report

Datacom Group Limited 3 Datacom Group Limited 3

2002 2003 2004 2005 2006

Profit Before Tax $000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

0


Directors’ Report

DividendsDividends of $1.70 per share were provided for

during the year. Interim dividends of 55 and 65

cents were paid on 8 September 2005 and

10 February 2006 respectively. A fi nal dividend

of 50 cents was paid on 12 May 2006.

DirectorsMerrill Holdsworth was appointed to the

Board on 6 May, as an alternate director to

John Holdsworth. Messrs S.L. Matheson,

J.W. Holdsworth and J.C. Hagen retire by

rotation and, being eligible, offer themselves

for re-election.

AuditorIt is proposed the auditor, Ernst & Young,

continue in offi ce in accordance with Section

200 (1) of the Companies Act 1993.

DisclosuresThe shareholders of the company have

exercised their right under Section 211 (3) of

the 1993 Companies Act and unanimously

agreed that this Annual Report need not

comply with paragraphs a) and e) to g) of

Section 211 (1) of the Act for the year ended

31 March 2006.

AppreciationOn behalf of the Board I would like to extend

thanks to all management and staff for their

continued support and commitment to the

Group and its customers. They deserve great

credit for their dedication and hard work in

making our company the success it is.

For and on behalf of the Board.

J.W. Holdsworth

Chairman

Datacom Group Limited

Employee Numbers

2002 2003 2004 2005 2006

2500

2000

1500

1000

500

0

Return on Equity %

40

30

20

10

0

2002 2003 2004 2005 2006

2006 2005

$000 $000

Revenue 357,020 306,230

Net surplus before tax 32,678 25,639

Tax 10,606 8,394

Net surplus after tax 22,072 17,245

Total assets 133,549 93,433

Shareholders’ funds 61,080 50,149

Return on average shareholders’ funds 40% 34%

Earnings per share $3.30 $2.56

Net asset backing per share $9.68 $9.30


Net Surplus After Tax $000

25,000

20,000

15,000

10,000

5,000

0 2002 2003 2004 2005 2006

Revenue $000

400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0 2002 2003 2004 2005 2006

Financial SummaryFor the year ended 31 March 2006


Company Report

Datacom New Zealand 2005/06Thanks to the support of customers and staff,

Datacom New Zealand’s (DNZ’s) revenue is

up by 10% to $248m for the year. Systems

developed and services delivered are up

by more than that – the effect masked by

keener prices. Even so, profi t margins were

maintained as a result of continuing

investment in software tools, best practice,

and data centre automation.

Customers did more of their business through

online channels during the year, and demand

increased for big systems development,

integration and outsourcing services. This

is DNZ’s strong suit – the smart delivery of

reliable and secure systems and services

– and it no doubt contributed to the growth

in NZ staff numbers by 125 to around 1,285

at year-end.

Services offered (with 300 to 400 staff

members apiece) are custom systems

development and integration, systems

engineering and support, ongoing systems

and site management (outsourcing), and

business process outsourcing (where

DNZ operates the systems). The categories

stay the same, but the content evolves as

DNZ adapts to meet market needs:

Systems Development

and Integration Group

‘Self-service’ remains the main area of

customer interest for improved systems –

enabling customers’ customers to buy, track,

manage and pay for their purchases online

– backed up by automated provisioning and

post-sales service. Time-to-market and the

ability to marshal big teams without losing

effi ciency has become a key differentiator for

DNZ, with customers’ planning horizons and

lead-times for settling requirements now

hotspots on the critical path.

The development projects also involve

integrating systems for the provisioning

of goods and supply of post-sales support.

It is not that unusual for a single customer

transaction to initiate over one hundred

processes to handle delivery and subsequent

services. Like self-service, integrated

provisioning frequently calls for wiring

new web-based and mobile systems into

old applications and databases. DNZ’s early

take-up of Java and Microsoft integration and

messaging middleware (dating back to 2000)

stands it in good stead for designing and

implementing such service-oriented

architectures – incorporating and exposing

old code as web services.

Systems Engineering and Support Group

As computers and (internet protocol)

communications become cheaper, the power

of systems is limited by the skill and

imagination of customers and designers.

IT represents a more or less endless source of

energy, as long as systems are fuelled by it and

platforms engineered to deliver it. This year,

DNZ has concentrated on platform fl exibility,

durability and economy – as well as security

and reliability – via server confi guration

and consolidation, shared network storage,

virtualisation (using one machine to look like

20 – and facilitating software deployment),

harnessing the web for voice/data

communications, and wireless networking.

An increasingly common concern has been

ensuring business continuity – as distinct from

years – the two data centres have to be well

apart (Auckland/Wellington say) and that is

expensive compared to using metropolitan

fi bre. Except for the mission-critical systems,

customers are opting for regional continuity

(plus national DR, at the risk of loss of service

for hours or days) with the intention of

redistributing regional load-shared platforms

as national communication costs improve.

Systems Management

and Outsourcing Group

DNZ’s data centres in Auckland, Wellington

and Christchurch provide resilient nationwide

services and DR options – including multi-

vendor broadband and internet access.

As well as this hosting, DNZ offers systems

management services to handle some or all

of organising what is to be run, managing

suppliers, deploying technical specialists,

controlling costs, and contriving to achieve

economies of scale and scope. But systems

management is ultimately about performance

quality – and, with data centres, that is to do

with deploying the tools which manage,

monitor and control hardware and software

and its capacity and performance.

This is why DNZ is such a big user (NZ’s

premier partner) of CA Unicentre tools and its

Flight Centre environment, and why a systems

engineer now looks after fi ve times as many

servers, databases and workstations as fi ve

years ago. And that trend will continue with

even smarter tools automation and more

reliable/resilient equipment. But platform


‘Demand increased for big

systems development,

integration and outsourcing

services.’

providing disaster recovery (DR). With its

resilient data centres and telco diversity,

DNZ has the infrastructure needed in this

area. It does not cost much these days to

organise a non-stop arrangement between

shared load-balanced systems located in

separate data centres with low-cost fi bre

between them. It is hardly more expensive

than a single vulnerable machine, and protects

the platform and keeps things running.

Such a regional arrangement handles, say,

19 out of 20 disturbances (those local to a

site). But to handle the twentieth disruption

without stopping – maybe once every 200


Company Report

design and management tools do not mean

much without process and a modern helpdesk.

It is DNZ’s award-winning (ITIL) helpdesks

and escalation regime – backed by national

site engineering – which nails down delivery

against key performance indicators and

end-to-end service level objectives.

Business Process Outsourcing Group

‘Do what you do best and sub-contract the

rest’ applies not only to systems management

Customers may enter into such a partnership

without a lot of detailed work, and adjust the

content of the outsource and revise performance

and cost benchmarks in line with progress

and priorities. Nothing is ever constant, and

realistic acceptance of the dynamic nature of

an outsource saves a lot of time, money and

contract variations. DNZ’s goal is to provide as

much or as little help, at any time, as suits a

customer’s evolving situation and priorities.

2006/7 Outlook and Productivity

It is expected that 2006/07 will be a year of

consolidation – responding to changes in the

economy and technology, and building up for

faster growth in 2007/08. DNZ will aim, as

always, to be the supplier of choice for high

performance systems and services and the

place to work for the best IT professionals.

And, paradoxically, to be the low-cost supplier

through economies of scale, investment in

tools, cultivating best practice, deliberate

leverage of the learning curve, and attention

to the effi ciency of an understated and austere

approach. But, above all, DNZ and its staff

members will continue to do their best to

please customers with the benefi ts of

productive systems, built and run in an

orderly and economical manner.

F.N. Stephenson

Executive Chairman

Datacom NZ

outsourcing but to the outsourcing of a

business process or complete function (output

priced, with responsibility for providing,

improving, and replacing systems at DNZ’s

expense). For example, DNZ operates

helpdesks, payment systems, booking

applications and logistics functions. Savings

of 25% are common, at the same time as

making signifi cant improvements in measures

such as throughput, time-to respond/rectify,

error rate, and queue length.

Whatever the type of outsourcing –

infrastructure, systems, process or function –

the open/selective/fl exible rules which have

served customers and DNZ over the years

remain the key to a straightforward

engagement characterised by responsive

service, continuing good fi t, and satisfaction.

They are (1) an open exit clause, (2) an agreed

planning regime and horizon, (3) full ongoing

disclosure of costs, volumes and performance

fi gures, (4) third-party products and services

passed through at net cost, and (5) shared

incentives as appropriate.


Datacom Australia and Asia - Annual Report 2006During 2006 we enjoyed growing market

recognition of Datacom as a Professional IT

Service provider and of the benefi ts we offer

in terms of agility of response, fl exibility of

solution and the importance of locally based

resources delivering quality outcomes to our

client base.

Datacom’s approach to Free Form Outsourcing

continues to meet with much interest and

support from the client community and we

were again able to regularly demonstrate

Datacom’s value proposition as being

compelling in the face of competitive scrutiny.

This success was instrumental in lifting our

revenue by 24% to $109 million, which was

in turn supported by an expansion in our skill

base to 716 professionals, a 10% growth on

the previous year.

A key strategic objective to expand Datacom’s

reach into Queensland was realised through

the acquisition of NetOptions. With a 10 year

trading history and revenue base of over

$30 million, NetOptions had established an

outstanding client list at State and Local

Government levels, plus within the Education

and Corporate sectors.

The business has continued to trade solidly

following completion of the transaction in

September 2005, continuing to enjoy many

competitive wins. These have included

major deals with the Department of Justice,

the Catholic Education Commission

Rockhampton, the Residential Tenancy

Authority, Cricket Australia, Unitab,

the University of Queensland Veterinary

Science and the Environmental

Protection Agency.

Additionally, NetOption’s position as a tier

one procurement vendor has allowed the

balance of Datacom’s Australian business

to be more competitive in this sector of

the market.

The Software Development entity in NSW

delivered a wide range of projects to

‘Predictability, repeatability

and continuous improvement

remains the mantra.’

companies including FedEX, Sinclair Knight

Mertz, Unwired, O’Donnell Griffi th and

AusIndustries, expanding the range of

reference accounts and further maturing

the practice in doing so.

The year signifi ed a period of solid growth

within the Victorian market where we

successfully leveraged our expanded presence

afforded through our 2004 acquisition of the

GlobalCenter. The business elected to focus

on managed infrastructure services and

secured Atlas Specialty Metals, VICRoads


and Spotless, amongst others, as new clients,

highlighting the success of this strategy.

The company made a further commitment to

our Victoria presence through the purchase of

our premises at 190 City Road for a sum in

excess of $7 million. This move is in line with

the Group’s preference to own the buildings

that house our data centres and allowed us to

invest an additional $1.8 million in the facility

with confi dence in the long-term nature of

our tenancy.

The strategic value of our Malaysian operation

has been considerable during the year, in that

we have been able to protect elements of our

existing client base through migrating workload

from Australia to meet requests for lower cost

delivery scenarios, while at the same time

achieving exacting quality standards.

Additionally, a number of new clients have

been added into the business in both Malaysia

and Australia; Logitech and Adobe are two

prime examples.

Importantly, a number of substantial existing

contracts were re-signed, refl ecting the

quality of service being delivered and the

cost-effectiveness of the delivery model.

These included Hewlett-Packard, CISCO and

TRUEnergy.

Predictability, repeatability and continuous

improvement remains the mantra for the

business as do our commitments to quality

through maintenance of COPC certifi cation

within the Call Centre operation and ITIL

across the services business.

We look at 2006 as a year of successful

progress for the business and remain confi dent

that the company is well positioned to meet

the demands of the market during 2007.

M.C. Browne

Managing Director

Australia/SE Asia

‘The year signified a period

of solid growth.’

Company Report


Consolidated Parent Company

2006 2005 2006 2005

Notes $000 $000 $000 $000

Operating revenue 2 357,020 306,230 17,067 16,343

Operating surplus before taxation 3 32,678 25,639 15,361 14,735

Income tax expense 4 10,606 8,394 311 129

Operating surplus after tax 22,072 17,245 15,050 14,606

Net surplus attributable to minority interest 1,218 907 - -

Net surplus attributable to the shareholders

of the company 20,854 16,338 15,050 14,606

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


Statement of Financial PerformanceFor the year ended 31 March 2006


2006 2005 2006 2005

Notes $000 $000 $000 $000

Net Surplus Attributable to:

Company 20,854 16,338 15,050 14,606

Minority interest 1,218 907 - -

Net surplus for the year 22,072 17,245 15,050 14,606

Other Recognised Revenue and Expenses

Foreign currency translation reserve:

Attributable to parent company shareholder 7 631 (504) - -

Attributable to minority shareholder 118 (60) - -

Total recognised revenues and expenses for the year 22,821 16,681 15,050 14,606

Contributions from Owners:

Ordinary shares issued during the year 1,258 - 1,258 -

Distribution to Owners:

Dividends on ordinary/employee shares 11 (10,761) (15,610) (10,761) (15,610)

Ordinary/employee shares repurchased & cancelled (2,302) (740) (2,302) (740)

Distributions to minority shareholders (202) (371) - -

Other Movements

Increase (decrease) in minority interest 117 (62) - -

Total movements in equity 10,931 (102) 3,245 (1,744)

Equity at the beginning of the year 50,149 50,251 18,302 20,046

Equity at the end of the year 61,080 50,149 21,547 18,302


Statement of Movements in EquityFor the year ended 31 March 2006

Datacom Group Limited 13 Datacom Group Limited 13


2006 2005 2006 2005

Notes $000 $000 $000 $000

Equity

Attributable to parent company shareholders 12 58,254 48,574 21,547 18,302

Attributable to minority interest in negative equity (357) (445) - -

Attributable to minority interest in positive equity 3,183 2,020 - -

Total equity 61,080 50,149 21,547 18,302

Represented by:

Non Current Assets

Property, plant & equipment 14 37,572 18,931 14,730 5,557

Investment in subsidiaries 9 - - 1,307 1,134

Goodwill 15 3,830 - - -

Employee and share scheme advances 2,036 1,279 1,548 733

Deferred cost of goods sold - 753 - -

Deferred taxation 5 2,708 2,950 14 7

Finance lease receivables 19 136 204 - -

Total non-current assets 46,282 24,117 17,599 7,431

Current Assets

Cash 26,293 18,035 8,134 4,988

Receivables & prepayments 18 51,671 45,391 7,812 11,231

Inventories 16 4,213 2,688 - -

Work in progress 4,817 2,500 - -

Deferred cost of goods sold - 151 - -

Finance lease receivables 19 273 551 - -

Total current assets 87,267 69,316 15,946 16,219



Statement of Financial PositionFor the year ended 31 March 2006



2006 2005 2006 2005

Notes $000 $000 $000 $000

Current Liabilities

Bank overdraft 20 4,793 1,304 - -

Payables 21 35,274 27,167 2,736 2,451

Employee entitlements 10,432 8,950 35 30

Dividends payable 3,155 2,867 3,155 2,867

Dividends payable to minority interest - 99 - -

Current portion of term liabilities 22 2,304 972 72 -

Total current liabilities 55,958 41,359 5,998 5,348

Net Working Capital 31,309 27,957 9,948 10,871

Non Current Liabilities

Employee entitlements 866 598 - -

Term liabilities 22 15,645 1,327 6,000 -

Total non-current liabilities 16,511 1,925 6,000 -

Net Assets 61,080 50,149 21,547 18,302


For and on behalf of the Board, which authorised the issue of the fi nancial statements on:

J.W. Holdsworth Dated: 3 August 2006 J.C. Hagen Dated: 3 August 2006

Chairman Director


Statement of Cash FlowsFor the year ended 31 March 2006



2006 2005 2006 2005

Notes $000 $000 $000 $000

Cash Flows from Operating Activities

Cash was Provided from:

Receipts from customers 350,918 297,358 2,498 2,149

Rent 351 2,634 980 693

Interest received 1,649 1,482 474 599

Dividends received 1 - 13,856 14,868

Tax refunded 506 - 150 384

Total cash provided 353,425 301,474 17,958 18,693

Cash was Disbursed to:

Payments to suppliers & employees 303,545 269,476 3,026 2,466

Interest paid 4 24 - 91

Rent/operating leases paid 8,091 8,904 - -

Taxation paid 11,860 10,405 - -

Total cash disbursed 323,500 288,809 3,026 2,557

Net Cash Flows from Operating Activities 28 29,925 12,665 14,932 16,136

Cash Flows from Investing Activities


Sale of property, plant & equipment 18 44 - -

Share scheme receipts 2,891 1,213 2,847 1,101

Prepayments for share sale 551 - 551 -

Other 14 - - -



Purchase of property, plant & equipment 25,718 9,494 9,377 200

Share scheme loan payments 2,821 1,299 2,821 1,299

Acquisition of subsidiary 10 5,508 - - -


Net Cash Flows from Investing Activities (30,573) (9,536) (8,800) (398)



2006 2005 2006 2005

Notes $000 $000 $000 $000

Cash Flows from Financing Activities


Repayment of loan from subsidiaries - - 7,630 1,400

Loan from minority shareholder - 70 - -

Term loan 19,739 - 8,000 -

Share issue 1,258 - 1,258 -

Finance leases 430 1,662 - -



Payment of loans to subsidiaries - - 5,474 2,734

Term loan 4,276 - 2,154 -

Finance leases 833 1,769 - -

Repurchase of shares 2,302 - 2,302 -

Dividends paid on ordinary/employee shares 10,473 16,094 10,473 16,095

Dividends paid to minority interests 202 272 - -


Net Cash Flows from Financing Activities 3,341 (16,403) (3,515) (17,429)

Net increase (decrease) in cash held 2,693 (13,274) 2,617 (1,691)

Cash at the beginning of the year 16,731 30,244 4,988 6,917

Cash received on acquisition of subsidiary 1,544 - - -

Effect of exchange rate change on foreign currency balances 532 (239) 529 (238)

Cash at the end of the year 21,500 16,731 8,134 4,988

:Comprising:

Cash at bank 26,293 18,035 8,134 4,988

Bank overdraft (4,793) (1,304) - -

21,500 16,731 8,134 4,988


Notes to and Forming Part of the Financial StatementsFor the year ended 31 March 2006

1. Statement of Accounting Policies

Reporting EntityDatacom Group Limited is a company registered under the Companies Act 1993.

The Company is an issuer for the purposes of the Financial Reporting Act 1993. The

fi nancial statements of the Company and the Group have been prepared in accordance

with the Companies Act 1993 and the Financial Reporting Act 1993.

The Company and its subsidiaries comprise the Datacom Group.

Measurement BaseThe accounting principles recognised as appropriate for the measurement and reporting

of fi nancial performance and fi nancial position on a historical cost basis are followed by

the Group.

Specific Accounting PoliciesThe following specifi c accounting policies which materially affect the measurement of

fi nancial performance and the fi nancial position have been applied.

a) Basis of Consolidation Subsidiaries are entities in which the Company has the capacity to determine the

fi nancing and operating policies and from which it has an entitlement to signifi cant

ownership benefi ts.

The consolidated fi nancial statements, which include the parent company and its

subsidiaries, have been prepared using the purchase method. All signifi cant intercompany

transactions have been eliminated in preparing the consolidated statements. In the

company’s fi nancial statement, investments in subsidiaries are stated at their cost less

provision for impairment.

b) Intangible Assets Goodwill represents the excess of the purchase consideration over the fair value of the

net tangible and identifi able intangible assets, acquired at the time of the purchase of

acquisition of a business or an equity interest in a subsidiary or associate. Goodwill is

amortised by the straight line method over the period during which benefi ts are expected

to be received. This is a maximum of 10 years.

c) Property, Plant and Equipment All items of property, plant and equipment are stated at cost, including costs directly

attributable to bringing the asset to its working condition.


c) Property, Plant and Equipment (continued)Any expenditure that increases the economic benefi ts derived from an asset is capitalised.

Expenditure on repairs and maintenance that does not increase the economic benefi ts is

expensed in the period it occurs.

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

Furniture & fi ttings ...........................................3-10 years

Leasehold improvements ...................................2-10 years

Computers ...........................................................2-5 years

Leased computers ...................................Term of the lease

Plant & equipment ............................................3-10 years

Motor vehicles .....................................................3-5 years

Leased motor vehicles ............................Term of the lease

Buildings ..............................................................40 years

Land .........................................................Not depreciated

When an item of property, plant or equipment is disposed of, the difference between

net disposal proceeds and the carrying amount is recognised as a gain or loss in the

statement of fi nancial performance.

d) ReceivablesReceivables are valued at net realisable value, after due allowance has been made for

doubtful debts.

e) Taxation The income tax expense charged to the statement of fi nancial performance includes both

the current year’s provision and the income tax effect of timing differences calculated

using the liability method.

Tax effect accounting is applied on a partial basis to all timing differences. The tax effect

of timing differences is only recognised to the extent they are expected to crystallise in

the foreseeable future. A debit balance in the deferred tax account, arising from timing

differences or income tax benefi ts from income tax losses, is only recognised if there is

virtual certainty of realisation.

f) InventoriesTrading inventories are stated at the lower of cost and net realisable value, determined

on a specifi c identifi cation basis.

g) LeasesDatacom Group entities lease certain plant and equipment and land and buildings.


g) Leases (continued)

Finance leases, which effectively transfer to the Company substantially all of the risks

and benefi ts incident to ownership of the leased item, are capitalised at the present value

of the minimum lease payments. The leased assets and corresponding liabilities are

recognised and the leased assets are depreciated over the period the Company is expected

to benefi t from their use.

The cost of fi nance leases, which effectively transfer to the client substantially all of the

risk and benefi ts incident to ownership of the leased item, are charged to the client on a

monthly basis over the term of the lease.

Operating lease payments, where the lessors effectively retain substantially all the risks

and benefi ts of ownership of the lease items, are included in the determination of the net

surplus in equal instalments over the period of the lease.

h) Foreign CurrenciesTransactions in foreign currencies are converted at the New Zealand rate of exchange

ruling at the date of the transaction. Short-term transactions covered by foreign currency

forward exchange contracts are measured and reported at the forward rates specifi ed in

those contracts.

At balance date, foreign monetary assets and liabilities including those of integrated

foreign operations are translated at the closing rate, and exchange variations arising from

these translations are recognised in the statement of fi nancial performance. The statement

of fi nancial 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 closing

rate. Foreign currency exchange differences are recognised in the foreign currency

translation reserve.

i) Financial Instruments Financial instruments recognised in the statement of fi nancial position include cash

balances, bank overdrafts, receivables, payables, investments and loans to others, and

term borrowings. In addition, members of the Datacom Group are party to fi nancial

instruments with off-balance sheet risk to meet fi nancing needs and to reduce exposure

to fl uctuations in foreign currency exchange rates. These fi nancial instruments include

guarantees of subsidiaries’ bank account overdraft facilities, swaps and foreign currency

forward exchange contracts.

The Group enters into foreign currency forward exchange contracts to hedge trading

transactions. Gains and losses on contracts which hedge specifi c short-term foreign

currency denominated transactions are recognised as a component of the related

transaction in the period in which the transaction is completed.



i) Financial Instruments (continued)

The Group is exposed to changes in overdraft and deposit interest rates. Due to the low level of such risk limited cover is taken. The Group further minimises its credit exposure

by limiting the amount of funds placed with any one fi nancial institution at any one time.

The net differential paid or received on interest swaps is recognised as a component of

interest expense or interest revenue over the period of the agreement.

Any fi nancial instruments that do not qualify as hedges are stated at market value and

any gain or loss is recognised in the statement of fi nancial performance.

j) Cash Flows For the purpose of the statement of cash fl ows, cash includes cash on hand, deposits held

at call with banks and investments in money market instruments, net of bank overdrafts,

which are used as part of day-to-day cash management.

k) Employee Entitlements A liability for annual leave and long service leave is accrued and recognised in the

statement of fi nancial position. The liability is equal to the present value of the estimated

future cash outfl ows as a result of employee services provided at balance date.

l) Changes in Accounting Policies There have been no changes in accounting policies during the year. All policies have

been applied on bases consistent with those in previous years. Certain fi gures for the

2005 year have been reclassifi ed to conform to the current year’s presentation.



2006 2005 2006 2005

$000 $000 $000 $000

2. Operating Revenue

Sales 353,621 301,951 504 504

Dividend revenue 1 1 13,644 14,532

Interest revenue 1,681 1,564 476 589

Rent revenue 351 2,634 980 693

Foreign exchange gains 591 - 696 -

Other revenue 775 80 767 25

Total operating revenue 357,020 306,230 17,067 16,343




2006 2005 2006 2005

$000 $000 $000 $000

3. Operating Expenses

Operating Surplus Before Taxation Includes

Amortisation of goodwill 348 - - -

Audit fees 291 235 42 31

Bad debts written off 27 3 - -

Change in provision for doubtful debts (270) 411 - -

Depreciation:

– Furniture & fittings 624 505 7 8

– Leasehold improvements 1,165 893 - -

– Computers 2,940 2,732 6 6

– Leased computers 391 279 - -

– Plant & equipment 2,164 1,749 1 2

– Motor vehicles 16 8 5 3

– Leased motor vehicles - 9 - -

– Buildings 251 125 181 125

Directors’ fees 117 143 125 75

Donations 52 79 15 46

Foreign currency exchange losses - 415 - 237

Interest:

– Mortgages & other borrowings 924 114 324 91

– Finance charges on finance leases 100 174 - -

Loss on sale of property, plant & equipment 59 63 6 -

Rental & operating lease costs 8,091 8,904 - -

Amounts Paid and Payable to the Auditors for:

Auditing the Financial Statements

Company auditor 291 230 42 31

Other auditors - 5 - -

Other Services

Company auditor 228 140 157 96



2006 2005 2006 2005

$000 $000 $000 $000

4. Income Tax Expense

Operating surplus before taxation 32,678 25,639 15,361 14,735

Prima facie income tax 10,784 8,461 5,069 4,863

Add (Subtract) Taxation Effect of

Permanent Differences:

Non-deductible legal expenses 2 42 1 -

Other non-deductible expenses 565 288 14 70

Non-taxable dividends - - (4,502) (4,795)

Other non-taxable income (252) (19) (253) -

Deferred tax asset (liability) not recognised (29) (346) (16) (9)

Recognition of tax losses not previously recognised (47) (67) - -

Prior period adjustment (186) 206 (2) -

Tax rate difference (231) (171) - -

Taxation on surplus 10,606 8,394 311 129

The Income Tax Expense is Represented by:

Current tax 10,364 8,859 318 133

Deferred tax 242 (465) (7) (4)

10,606 8,394 311 129

There are tax losses available to be carried forward against profi ts in overseas subsidiaries

of AUD 309,102 (2005: AUD 496,726). The benefi t of these has not been recognised in the

fi nancial statements due to the uncertainty of their recoverability in the immediate future.

Tax losses arising in each jurisdiction can only be utilised against future profi ts arising in

the same jurisdiction.

The Group has not recognised deferred taxation assets on cumulative timing differences of

$1,060,500 (2005: $1,079,607) as these are not expected to reverse in the foreseeable future.

The tax effect of timing differences not recognised is $349,965 (2005: $356,270).




2006 2005 2006 2005

$000 $000 $000 $000

5. Deferred Tax Asset (Liability)

Balance at the beginning of the year 2,950 2,485 7 3

Transfer to (from) statement of financial performance (242) 465 7 4

Balance at the end of the year 2,708 2,950 14 7

6. Imputation Credit Account

Balance at the beginning of the year 10,494 10,093

Imputation credits attached to dividends paid during the year (6,292) (6,413)

Income tax payments (refunds) & transfers during the year 8,150 6,814

Balance at the end of the year 12,352 10,494

Since all New Zealand companies in the Group have been part of a tax consolidated group

from 1 April 2002, the parent company’s imputation credit account refl ects all of these

subsidiaries from that day on.

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

Through direct shareholding in the company 12,352 10,494

Through indirect interests in subsidiaries 5,879 5,879

18,231 16,373

7. Reserves

Foreign Currency Translation Reserve

Balance at the beginning of the year (342) 162 - -

Movement during the year 631 (504) - -

Balance at the end of the year 289 (342) - -


Group & Company Group & Company

2006 2006 2005 2005

Number Value Number Value

000 $000 000 $000

8. Share Capital

Ordinary shares 5,978 9,169 5,996 7,989

Employee shares 331 1,966 375 2,153

Total share capital 6,309 11,135 6,371 10,142

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 Company

on winding up.

Employee Shares

These shares are non-voting except as between the holders of Employee Class Shares in a

vote pursuant to section 117 of the Companies Act 1993 where the holders of Employee Class

Shares are entitled to vote as an “Interest Group”. In those circumstances each share carries a

vote of 1/331,500.

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

on winding up.



Percent Held Country of

Note 2006 2005 Incorporation

9. Investments in Subsidiaries

Significant Subsidiaries:

Datacom Systems Limited 100% 100% New Zealand

Datacom Systems (Wellington) Limited 100% 100% New Zealand

Datacom Engineering Services Limited 100% 100% New Zealand

New Technologies Limited 10c - 100% New Zealand

Datacom Employer Services Limited 100% 100% New Zealand

Datacom Services Limited 100% 100% New Zealand

Interconnect Limited 10c - 100% New Zealand

DTL Finance Limited 10c - 100% New Zealand

Datacom Australia Holdings Pty Limited 88.7% 89.5% Australia

Subsidiaries:

Datacom Investments Pty Ltd 100% 100% Australia

Subsidiaries:

Datacom Systems Pty Ltd 100% 100% Australia

Datacom Customer Contact Pty Ltd 100% 100% Australia

Datacom Financial Services Pty Ltd 51% 51% Australia

Datacom Connect Pty Ltd 70% 70% Australia

NetOptions Pty Ltd 90% - Australia

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

Subsidiaries:

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

Datacom South East Asia Philippines Inc 100% 100% Philippines

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

All subsidiaries have a balance date of 31 March and are involved in various aspects of

Business Process Outsourcing and IT Services.


10. Acquisition and Disposal of Subsidiaries

a) Acquisition of SubsidiariesIn September 2005 Datacom Investments Pty Ltd, a subsidiary of the Group, acquired

90% of the 100 shares in NetOptions Pty Ltd. NetOptions Pty Ltd is a supplier of

computer hardware and software based in Brisbane. NetOptions Pty Ltd became a

subsidiary of Datacom Investments Pty Ltd from the date of acquisition.

Assets and Liabilities of the consolidated entity are as follows:

The Group did not acquire any subsidiaries in the 2005 fi nancial year.

b) Disposal of SubsidiariesDatacom South East Asia (Thailand) was liquidated in September 2005. The Group

did not dispose of any subsidiaries in 2005.

c) Amalgamation On 20 March 2006 the following non-trading subsidiaries were amalgamated with

trading subsidiaries:

The Printer Connection Ltd, New Technologies Ltd, Datacom Network Services Ltd

and Interconnect Services Ltd with Datacom Engineering Services Ltd.

Datacom ISG Ltd and DTL Finance Ltd with Datacom Systems Ltd.

2006

$000

Property, plant & equipment 284

Current assets 3,980

Payables and other liabilities (2,934)

1,330

Goodwill 4,178

Consideration paid 5,508




2006 2005 2006 2005

$000 $000 $000 $000

11. Distribution to Owners

Interim Distributions:

Dividend on ordinary shares 7,184 11,993 7,184 11,993

Dividend on employee shares 422 750 422 750

Final Distribution:

Dividend on ordinary shares 2,989 2,698 2,989 2,698

Dividend on employee shares 166 169 166 169

Total distributions to owners 10,761 15,610 10,761 15,610

12. Total Equity

Share capital 11,135 10,142 11,135 10,142

Foreign currency translation reserve 289 (342) - -

Accumulated surplus 46,830 38,774 10,412 8,160

58,254 48,574 21,547 18,302

Equity attributable to minority shareholders

of the Group 2,826 1,575 - -

Total equity 61,080 50,149 21,547 18,302



2006 2005 2006 2005

$000 $000 $000 $000

13. Accumulated Surplus

Balance at the beginning of the year 38,774 38,691 8,160 9,809

Net surplus attributable to the shareholders

of the company 20,854 16,338 15,050 14,606

Repurchase of shares (2,037) (645) (2,037) (645)

Distribution to owners (10,761) (15,610) (10,761) (15,610)

Balance at end of the year 46,830 38,774 10,412 8,160

14. Property, Plant & Equipment

Furniture & fittings at cost 5,107 4,597 62 61

Accumulated depreciation (3,736) (3,307) (50) (43)

1,371 1,290 12 18

Leasehold improvements at cost 8,094 6,697 - -

Accumulated depreciation (5,612) (3,748) - -

2,482 2,949 - -

Computers at cost 23,603 21,145 51 52


5,849 4,044 7 9

Leased computers at cost 1,018 1,010 - -

Accumulated depreciation (810) (417) - -

208 593 - -




2006 2005 2006 2005

$000 $000 $000 $000

14. Property, Plant & Equipment (continued)

Plant & equipment at cost 11,375 9,791 27 27


4,142 4,496 7 4

Motor vehicles at cost 105 85 49 49

Accumulated depreciation (46) (17) (17) (12)

59 68 32 37

Leased motor vehicles at cost 31 28 - -

Accumulated depreciation (31) (26) - -

- 2 - -

Buildings at cost 12,118 4,765 7,505 4,765

Accumulated depreciation (1,261) (1,012) (1,192) (1,012)

10,857 3,753 6,313 3,753

Land at cost 12,604 1,736 8,359 1,736

Total net book value 37,572 18,931 14,730 5,557

15. Goodwill

Goodwill 4,178 -

Accumulated amortisation (348) -

Total intangibles 3,830 -

Balance at beginning of the year - -

Goodwill arising on acquisition 4,178 -

Amortisation (348) -

Balance at the end of the year 3,830 -

The goodwill arose through the purchase of a new business in 2006. (See note 10.)



2006 2005 2006 2005

$000 $000 $000 $000

16. Inventory

Inventories 2,440 2,584 - -

Goods in transit 1,773 104 - -

Total inventories 4,213 2,688 - -

17. Employee Share Schemes

Datacom Group Limited Share Scheme

The Group has advanced funds to enable the purchase of shares in Datacom Group Limited

through transfer of shares from other shareholders or by issue of new shares. The benefi cial

owners in the shares are nominated employees – as a consequence the share scheme is not

consolidated by the Group. Each advance is repayable over a maximum of 10 years with all

dividends on applicable shares being 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 having

regard to any recent independent valuation, any recent share transactions or any events or

information that has a material effect on the value of the shares.

As at 31 March 2006 the Scheme held 308,042 (5.15%) Ordinary shares

(2005: 493,408–8.23%) of which 8,042 (2005: 50,408) were not allocated. It held

331,500 (100%) Employee shares (2005: 375,000–100%) of which all were allocated

(2005: 3,000 not allocated).

Advances to directors under this Scheme totalled $106,140 (2005: $122,344).



Consolidated

2006 2005

$000 $000

17. Employee Share Schemes (continued)

Statement of Financial Performance

Income

Dividends on shares held in trust 1,520 3,101

Dividends on unallocated shares 135 66

Net surplus before tax for the year 1,655 3,167

Taxation expense 45 21

Net surplus after tax for the year 1,610 3,146

Statement of Financial Position

Equity

Retained earnings 842 752

Represented by:

Non-current Assets

Owing from Datacom Group 660 -

Current Assets

Unallocated shares 182 796

Term Liabilities

Owing to Datacom Group - 44

Net Assets 842 752


Consolidated

2006 2005

$000 $000 $000 $000

Market Number Cost Market Number Cost

Value Value

17. Employee Share Schemes (continued)

Shares Held

Ordinary Shares 9,186 308,042 1,392 9,064 493,408 766

Employee Shares 9,885 331,500 325 6,889 375,000 718

19,071 639,542 1,717 15,953 868,408 1,484

Datacom Australia Holdings Pty Ltd Share Schemes

In Australia the Group has advanced funds to enable the purchase of shares in Datacom

Australia Holdings Pty Limited. The owners of the shares are nominated employees – as a

consequence the share scheme is not consolidated by the Group. Each advance is repayable

over a maximum of 10 years with all dividends on applicable shares being appropriated as a

reduction of the advance.

The share price at which shares are allocated is determined by the Group Directors having

regard to any recent independent valuation, any recent share transactions or any events or

information that has a material effect on the value of the shares.

Scheme 1: no interest is charged. At 31 March 2006 the Scheme held 1,039,473 (9.88%)

Ordinary shares with a market value of $4,650,020 (2005: 1,099,473–10.45%), all of

which have been allocated. Advances to directors under this Scheme totalled $359,239

(2005: $380,605).

Scheme 2: interest at 8.5% is charged. As at 31 March 2006 the Scheme held 152,500

(1.45%) Ordinary shares with a market value of $682,200 (2005:Nil) all of which were

allocated. Advances to directors under this Scheme totalled $88,533.




2006 2005 2006 2005

$000 $000 $000 $000

18. Receivables & Prepayments

Trade receivables 46,569 43,151 - -

Related parties 353 - - -

Sundry receivables 1,305 718 2 7

Dividends receivable - - 1,390 1,602

Taxation refundable 954 - - 195

Inter-company receivables - - 6,386 9,370

Prepayments 2,490 1,522 34 57

Total receivables & prepayments 51,671 45,391 7,812 11,231

19. Finance Lease Receivables

Current 297 593 - -

Term 146 214 - -

Gross finance leases 443 807 - -

Less unearned income 34 52 - -

Net finance lease receivables 409 755 - -

Reconciled to:

Current receivables 273 551 - -

Term portion 136 204 - -

409 755 - -



2006 2005 2006 2005

$000 $000 $000 $000

20. Bank Balances

Bank overdraft 4,793 1,304 - -

Of the overdraft $3,278,255 (2005: $1,297,578) relates to Australian operations and is secured

through a Group guarantee for up to AUD 3,900,000 (NZD 4,555,200). $1,514,547 relates to

Asian operations and is secured through a Group guarantee for up to MYR 5 million (NZD

2.2 million). The interest rate charge was 8.5% (2005: 8.25%) for Australia, 3.07–4.11% for

Asia. Interest on credit balances was 1.5–4.75% (2005: 1.5–5.54%) for Australia, 2–3.15%

for Asia.

In New Zealand any overdraft balance during the year is offset against credit balances.

Interest on credit balances was between 5.39–7.25% (2005: 3.9–6.75%) for NZD investments.

During 2006 and 2005 the parent had AUD term deposits which earned interest at 3.5–4%.

21. Payables

Trade payables 21,092 19,243 71 34

Sundry payable & accruals 13,355 7,115 646 43

Taxation payable - 34 274 -

Intercompany payables - - 1,685 2,316

Related parties 827 775 60 58

Total payables 35,274 27,167 2,736 2,451

Sundry payables and accruals include provisions as refl ected in note 23.




2006 2005 2006 2005

$000 $000 $000 $000

22. Term Liabilities

Bank loans 16,536 - 6,072 -

Loan from minority shareholder 701 815 - -

Lease liability 712 1,484 - -

17,949 2,299 6,072 -

Less: Current Portion

Bank loans 1,753 - 72 -

Lease liability 551 972 - -

2,304 972 72 -

Total term liabilities 15,645 1,327 6,000 -

Of the bank loans $10,464,000 (2005: $1,297,578) relates to Australia. They are secured by

a Group guarantee to the drawn down value of $4,774,200 (2005: Nil) and a mortgage over

The GlobalCenter, 190 City Road, Melbourne to the value of $5,690,500 (2005: Nil).

The loans are in the form of commercial bills which are renewed every month. The bills

attracted an interest rate of between 5.62–6.05%.

A further $6,072,000 (2005: Nil) relates to the parent company. This loan is secured by a

fi ve-year mortgage over 210 Federal Street, Auckland. The interest rate paid was 8.22–8.31%.

The fi nance leases are secured over the assets to which they relate and attract an interest rate

of between 8.25–11.22% (2005 :7.65–9.09%). The loan from the minority shareholder incurs

interest of 4% and has no date of repayment.

Consolidated Parent Company Consolidated

Repayable as Follows:

Bank Loans Lease Liabilities

2006 2005 2006 2005 2006 2005

$000 $000 $000 $000 $000 $000

Less than 1 year 1,753 - 72 - 551 972

Between 1-2 years 3,682 - 3,000 - 121 504

Between 2-5 years 11,101 - 3,000 - 40 8

Total 16,536 - 6,072 - 712 1,484


23. ProvisionsThe Group did not carry any provisions at the end of the year.

Unused Amount

Opening Amount Reversed During New Closing

$000 Balance Paid the Current Period Provision Balance

Group 2005

Vacant space – New Zealand 216 - 216 - -

Total 216 - 216 - -

Parent 2006

The Parent did not have any provisions (2005: Nil).

Parent Company

2006 2005

$000 $000

24. Contingent Liabilities

Guarantee of bank overdraft facilities for subsidiaries

to a limit of: AUD 3,900 4,450

MYR 5,000 500

NZD - 4,347

Total net facility in NZD 6,769 9,370

At balance date the amount of the bank overdraft so

guaranteed was: AUD 2,807 1,193

MYR 3,421 -

Total in NZD 4,793 1,298

These guarantees have been secured by short-term deposits with Citibank New Zealand and

Australia to the value of $6,958,000.

Guarantee of mortgage facilities for subsidiaries

to a limit of: AUD 5,596 -

Total net facility in NZD 6,536 -

At balance date the amount of the mortgage so

guaranteed was: AUD 4,872 -

Total in NZD 5,692 -



25. Commitments

Capital Commitments

The company has capital commitments of $1,949,267 as at 31 March 2006 (2005: $435,000).


2006 2005 2006 2005

$000 $000 $000 $000

Operating Lease Commitments

Lease Commitments Under

Non-cancellable Operating Leases:

Less than 1 year 7,257 7,802 - -

Between 1-2 years 6,119 6,487 - -

Between 2-5 years 3,712 8,182 - -

Greater than 5 years - - - -

Total operating lease commitments 17,088 22,471 - -

26. Transactions with Related PartiesThe Company paid consultancy fees to Evander Management Ltd, a company in which

Mr J.W. Holdsworth, a shareholder and director, has an interest. The fees were charged on

normal terms and conditions and account for 7.23% (2005: 8.25%) of the total of the

Datacom Group’s consultancy fees. The amount outstanding at balance date represented

25.21% (2005: 25.11%) of Datacom Group’s total consultancy fees.

The Company also paid directors’ fees and salaries to its directors. This includes Datacom

Group and all the New Zealand, Australian and Asian subsidiaries. Directors fees paid during

the year were $117,000 (2005: $143,000). Salaries paid during the year were $670,900

(2005: $585,500).

During the year the Datacom Group provided IT services to New Zealand Post, a shareholder

of Datacom Group Limited. These services amounted to $34,863,000 (2005: $35,398,000).

The amount outstanding at balance date was $3,829,000 (2005: $4,485,000) which is payable

on normal trading terms.

No debts to related parties were written off or forgiven during the year (2005: Nil).



2006 2005 2006 2005

$000 $000 $000 $000

27. Financial Instruments

Credit Risk

Maximum exposures to credit risk at balance date are:

Bank balances 26,293 18,035 8,134 4,988

Finance Leases 409 755 - -

Share Scheme 2,036 1,279 1,548 733

Receivables 51,671 45,391 36 259

80,409 65,460 9,718 5,980

The above maximum exposures are net of any recognised provisions for losses on these

fi nancial instruments. No collateral is held on the above amounts.

General Exposure to Credit Risk

To the extent Datacom Group has a receivable from another party there is a credit risk in

the event of non-performance by that counterparty. Financial instruments which potentially

subject Datacom Group to credit risk principally consist of bank balances, receivables, foreign

currency forward exchange contracts and fi nancial guarantees.

Datacom Group continuously monitors the credit quality of the major fi nancial institutions

that are the primary counterparties to its fi nancial instruments and does not anticipate

non-performance by any of these counterparties.

Concentrations of Credit Risk

Datacom Group’s largest customer accounts for 9.86% (2005: 11.56%) of total sales and

8.22% (2005: 10.31%) of trade receivables at balance date. The Datacom Group does not have

any other signifi cant concentrations of credit risk.

Currency Risk

Datacom Group has exposure to foreign exchange risk as a result of transactions denominated in

foreign currencies, arising from normal trading activities including its Australian and Asian based

operations. The currencies in which Datacom Group primarily transacts are Australian and US

dollars. Where exposures are certain it is Datacom Group’s policy to hedge these risks as they arise.

27. Financial Instruments (continued)

Currency Risk (continued)

There were no outstanding foreign exchange forward rate contracts at balance date. Forward

rate contracts outstanding at the same time last year totalled $265,975.

Interest Rate Contracts

To manage the exposure to fl oating interest rates on its borrowings Datacom has entered into

an interest rate swap during the year for a notional $4m up to 21 November 2009, fi xing the

rate at 7.19% (2005: Nil).

Fair Values

The estimated fair value of foreign exchange contracts in 2006 is nil (2005: $4,725).

The carrying value for 2006 is nil (2005: Nil). The estimated fair value of the interest rate

swap is $52,605 (2005: Nil). The fair values of all other fi nancial instruments are equal to

their carrying values.

At balance date the Group had the following outstanding balances in foreign currencies that

were not hedged:


2006 2005 2006 2005

$000 $000 $000 $000

Malaysian Ringgit Current assets 1,377 484 - -

Current liabilities (3,084) (478) - -

Singapore Dollar Current assets 2 1 - -

Current liabilities (28) (16) - -

Philippine Peso Current assets 94 85 - -

Current liabilities (91) (78) - -

Thai Baht Current assets - 71 - -

Australian Dollar Current assets 30,200 21,416 - -

Current liabilities (21,135) (13,822) - -

Term liabilities (10,350) (1,413) - -





2006 2005 2006 2005

$000 $000 $000 $000

28. Cash Flow Reconciliation

Reported surplus after taxation 22,072 17,245 15,050 14,606

Add (Less) Non-cash Items

and Non-operating Items:

Depreciation 7,551 6,300 200 144

Amortisation of goodwill 348 - - -

Movement in deferred taxation 242 (465) (7) (4)

Bad debts written off 27 3 - -

Change in provision for doubtful debts (270) 411 - -

Loss on sale of investments/assets 5 9 6 -

Unrealised (gain) loss on foreign currency (698) 378 (696) 237

Other 277 247 (425) (1,678)

Movement in Working Capital:

Increase (decrease) in trade creditors 1,849 (3,595) 37 (11)

Increase (decrease) in sundry payables and

employee entitlements 7,774 668 59 (61)

Increase (decrease) taxation payable (34) (1,546) 274 -

(Increase) decrease inventory (621) (1,435) - -

(Increase) decrease work in progress (2,317) (655) - -

(Increase) decrease receivables & prepayments (5,326) (4,900) 28 (6)

(Increase) decrease taxation receivable (954) - 195 381

Increase (decrease) in inter-company payables - - 212 2,528

Net Cash Flows from Operating Activities 29,925 12,665 14,933 16,136



29. Segment Information

The Datacom Group is a supplier of IT systems, services and solutions. Intersegment sales are

transacted at market price and are payable on normal commercial terms and conditions.

Geographical Segments 2006

New Zealand Australia Asia Eliminations Consolidated

Sales to customers outside

Datacom Group 247,834 107,684 1,502 - 357,020

Intersegment sales 24,066 410 4,432 (28,908) -

Total revenue 271,900 108,094 5,934 (28,908) 357,020

Segment results 26,969 5,780 516 (587) 32,678

Taxation 8,527 1,897 182 - 10,606

Datacom Group operating

surplus 18,442 3,883 334 (587) 22,072

Segment assets 45,501 22,479 (413) (6,487) 61,080

2005

New Zealand Australia Asia Eliminations Consolidated


Datacom Group 224,634 80,563 1,033 - 306,230

Intersegment sales 21,013 197 2,207 (23,417) -

Total revenue 245,647 80,760 3,240 (23,417) 306,230

Segment results 20,314 5,910 (18) (567) 25,639

Taxation 6,737 1,657 - - 8,394


surplus 13,577 4,253 (18) (567) 17,245

Segment assets 39,213 18,901 (625) (7,340) 50,149


29. Segment Information (continued)

Industry Segments 2006

Business IT Services Other Eliminations Consolidated Process Outsourcing


Datacom Group 31,468 323,702 1,850 - 357,020

Intersegment sales 167 4,623 15,225 (20,015) -

Total revenue 31,635 328,325 17,075 (20,015) 357,020

Segment results 4,680 25,342 15,360 (12,704) 32,678

Taxation 1,527 8,768 311 - 10,606


surplus 3,153 16,574 15,049 (12,704) 22,072

Segment assets 4,392 41,318 21,547 (6,177) 61,080

2005

Business IT Services Other Eliminations Consolidated Process Outsourcing


Datacom Group 26,345 279,588 297 - 306,230

Intersegment sales 102 2,801 16,046 (18,949) -

Total revenue 26,447 282,389 16,343 (18,949) 306,230

Segment results 3,865 20,645 14,854 (13,725) 25,639

Taxation 1,298 6,967 129 - 8,394


surplus 2,567 13,678 14,725 (13,725) 17,245

Segment assets 2,468 39,374 14,790 (6,483) 50,149



29. Segment Information (continued)

Datacom Group operates mainly in two industries – Business Process Outsourcing and IT Services.

The business process outsourcing operations comprise the provision of call centre, payroll,

human resource and administrative services.

The IT services operations comprise the design, building and running of IT systems and

software applications and the provision of engineering services.

Intersegment sales are transacted at market price and are payable on normal commercial terms

and conditions.

30. Adoption of International Financial Reporting Standards

In December 2002 the New Zealand Accounting Standards Review Board announced that

New Zealand International Financial Reporting Standards (“NZ IFRS”) would apply to all

New Zealand reporting entities for the periods commencing on or after 1 January 2007.

Entities have the option to adopt NZ IFRS for periods beginning on or after 1 January 2005.

Datacom Group intends to implement NZ IFRS in its annual fi nancial statements for the year

ending 31 March 2008.

Transition Management

Datacom Group has started an NZ IFRS project to:

• assess the key differences in accounting policies under NZ IFRS and current accounting

policies;

• determine the impacts on the fi nancial statements from transition; and

• determine and to implement processes to deal with any related business impacts.

Change in Accounting Policies on Transition to NZ IFRS

Signifi cant differences identifi ed by Datacom Group are outlined below. It should not

be regarded as a complete list of changes in accounting policies that will result from the

transition to NZ IFRS, as some decisions have not yet been fi nalised where choices of

accounting policies are available.

Datacom Group has not yet completed an exercise to quantify the effects of the differences in

accounting policies discussed below, and are therefore currently unable to reliably quantify

impacts on the fi nancial statements, which will arise from transitioning to NZ IFRS. It is

possible that the actual impact of adopting NZ IFRS may vary from the information presented

below, and the variation may be material.

Datacom Group intends to provide further information, including quantifying the impacts of

transitioning to NZ IFRS in the Group’s annual fi nancial statements for the year ending

31 March 2007.


30. Adoption of International Financial Reporting Standards (continued)

Change in Accounting Policies on Transition to NZ IFRS (continued)

1. Deferred Tax

On transition to NZ IFRS deferred tax is calculated using the balance sheet approach

rather than the income statement approach currently applied. The balance sheet approach

provides for all temporary differences between the carrying amount of assets and

liabilities for accounting and tax purposes. Deferred tax will be recognised in the income

statement except to the extent that it relates to items recognised directly in equity or as

part of a business combination.

The amount of deferred tax provided is based on the expected manner of realisation or

settlement of the carrying amount of assets and liabilities. Any deferred tax asset is

recognised only to the extent that it is probable that future taxable profi ts will be

available against which the asset can be utilised.

2. Employee Benefits

Under current NZ GAAP Datacom Group previously did not recognise a liability when

long service leave vested. Under NZ IFRS long service leave must be accrued as it is

earned by employees, using an actuarial technique to determine the liability.

3. Goodwill

Currently goodwill is amortised on a straight-line basis over the period during which the

benefi ts are expected to be received. Under NZ IFRS goodwill is no longer amortised but

is instead tested for impairment. Goodwill will be allocated to the cash-generating units

(CGU) to which it relates and tested for impairment annually. Impairment losses will be

recognised in the income statement.

4. Financial Instruments

Accounting for fi nancial instruments under NZ IFRS involves some changes from our

current policies. All derivative contracts will be carried at fair value on Datacom Group’s

balance sheet. If a derivative contract qualifi es for cash fl ow hedge accounting, the

effective portion of the fair value movement will be taken to a reserve within equity.

All other changes in fair value are recognised immediately in the income statement.

5. Other Intangible Assets

Intangible assets must meet specifi c criteria to be recognised under NZ IFRS. Intangible

assets can generally not be revalued under NZ IFRS.



30. Adoption of International Financial Reporting Standards (continued)

Other Impacts on Transition to NZ IFRS

NZ IFRS 1 also allows a number of exemptions to assist in the transition to reporting under NZ

IFRS. The explanatory comments below include details of the NZ IFRS 1 exemptions adopted.

1. Property, Plant and Equipment

As permitted by NZ IFRS 1, Datacom Group intends to deem the previous amount

of depreciated cost of property, plant and equipment as their cost at the date of that

revaluation. Investment property will be valued according to NZ IAS 40 at Fair Value.

2. Restatement of Foreign Currency Translation Reserve

In accordance with the election available under NZ IFRS 1, the consolidated foreign

currency translation reserve balance at the date of transition will be transferred to

retained earnings.

3. Remeasurement of Business Combinations

Under the transitional arrangements of NZ IFRS 1, Datacom Group has elected not to

apply NZ IFRS to past business combinations.

Auditor’s Report


Auditor’s Report

To the Shareholders of Datacom Group Limited

We have audited the fi nancial statements on pages 12 to 46. The fi nancial statements provide

information about the past fi nancial performance of the company and group and their fi nancial

position as at 31 March 2006. This information is stated in accordance with the accounting

policies set out on pages 18 to 21.

Directors’ Responsibilities

The directors are responsible for the preparation of fi nancial statements which comply with

generally accepted accounting practice in New Zealand and give a true and fair view of the

fi nancial position of the company and group as at 31 March 2006 and of their fi nancial

performance and cash fl ows for the year ended on that date.

Auditor’s Responsibilities

It is our responsibility to express an independent opinion on the fi nancial statements presented

by the directors and report our opinion to you.

Basis of Opinion

An audit includes examining, on a test basis, evidence relevant to the amounts and disclosures

in the fi nancial statements. It also includes assessing:

• the signifi cant estimates and judgements made by the directors in the preparation of the

fi nancial statements; and

• whether the accounting policies are appropriate to the circumstances of the company and

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 we

considered necessary in order to provide us with suffi cient evidence to give reasonable assurance

that the fi nancial 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

information in the fi nancial statements.

Ernst & Young provides taxation and consulting services to the company and group.

Auditor’s Report


Chartered Accountants


Auditor’s Report

Unqualified Opinion

We 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 our

examination of those records; and

• the fi nancial statements on pages 12 to 46:

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

– give a true and fair view of the fi nancial position of the company and group as at 31 March

2006 and their fi nancial performance and cash fl ows for the year ended on that date.

Our audit was completed on 3 August 2006 and our unqualifi ed opinion is expressed as at that

date.

Wellington

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Annual Report 2006 - Datacom · 2015-02-05 · 6 Datacom Annual Report / Company Report Datacom New Zealand 2005/06 Thanks to the support of customers and staff, Datacom New Zealand’s