Year Ended 30 June 2005

The reported results include the results of the businesses acquired from Gijima for the two months of May and June 2005.
In order to provide a comparable base against which to measure performance, the income statement for the past year presented below contains an unaudited normalised view of the results had the Gijima businesses been included for the full twelve month period, eliminating the impact of non-recurring and unusual items from the results and assuming the increased number of shares in issue at 30 June 2005 had been in issue for the full financial year.

Normalised Income Statement for the year ended 30 June 2005

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*Restated to reflect the changes in basis of preparation

Revenue

Market conditions remained challenging during the year which resulted in a 6,2% reduction in reported revenue, excluding the R42,7 million revenue contribution of non-core businesses disposed of during 2004, but including the contribution of the acquired Gijima businesses for May and June 2005.

Change of accounting treatment for leases

The South African Institute of Chartered Accountants released circular number 7/2005 in August 2005 which advised South African companies on the accounting treatment of operating leases in terms of the provisions of Accounting Standard (AC) 105. In the past, as was generally the practice in South Africa, operating lease expenses were charged to the income statement when incurred. AC 105 requires accounting for operating lease payments, which include fixed rental increases, on a straight line basis over the period of the lease agreements.

This negatively impacted the Group’s operating profit by R3,2 million in the current year, R4,2 million in the previous year and R12,4 million in prior years. The graph below depicts the negative impact on the Group’s profitability into the 2007 financial year where after it has a positive profit impact. The net impact over the duration of the lease periods is nil. Comparative figures have been adjusted and it has been recognised as a fundamental error in accordance with AC 103.

EBITDA (Earnings before interest, tax, depreciation and amortisation) Margin
The reported EBITDA margin improved from 5.8% in 2004 to 7.4% in 2005. We successfully contained our cost base and increased margins despite continued pressure from clients to reduce their costs.

Impairment of assets and investments

Impairment of a deferred tax asset of R83,1m following a Deed of Settlement concluded with the South African Revenue Services (SARS) in September 2004 to resolve historic uncertainties regarding trade mark deductions has been included in the income tax expense. This amount was included in operating expenses in the interim financial results.

The impairment charge against assets and investments comprises the following non-recurring items:

• impairment of a R2,6 million derivative financial instrument resulting from the sale of properties and the consequential collapse of the related finance structure, and
• an impairment charge of R0,8 million relating to the de-commissioning of mainframe equipment.

Profit on sale of properties

A surplus of R4,6 million was realised on properties sold during the group’s restructuring programme.

Intangible assets acquired

In terms of International Financial Reporting Standard (IFRS) 3, the difference between the fair value of the ordinary shares issued for the acquisition of the Gijima businesses and the tangible asset value was allocated to specifically valued intangible assets, with the balance classified as goodwill as summarised below:

The value of the shares issued in consideration for the fair value of the Gijima businesses’ net assets have been adjusted to the closing market price on the transaction date of 45 cents. The merger and the rights issue were concluded at a share price of 35 cents.
The deferred tax liability that arose as a result of the fair value calculated for client contracts has, in accordance with IFRS 3, been reflected against the goodwill balance.
Client contracts comprise contractually secured agreements as at the merger date and ignore the likelihood of renewals. Amortisation is spread over the contract periods at the date of the merger. Client contracts were valued using a discounted cash flow valuation of the revenue and costs associated with each contract.
The indicative trade name valuation was calculated based on the relief-from-royalty methodology. In accordance with the provisional application requirements of IFRS 3 the finalisation of the value and useful life of the trademark will be completed within the specified 12 month period.

Impairment of goodwill

In accordance with IFRS 3 the Group ceased amortisation of historical goodwill from 1 July 2004. The impairment charge of R32,8 million relates to historic goodwill of which R4,0 million remains on the balance sheet.

Finance costs

Finance costs continued to decrease in line with the significantly lower interest bearing debt and lower market interest rates. An excess provision for interest of R17,3 million was reversed following the resolution of historic uncertainties with SARS. Fair value adjustments to financing agreements in support of group properties disposed of, coupled with the valuation of a financial derivative instrument resulting from a forward purchase of shares, resulted in a net charge of R2,1 million. The latter valuation impacted the Group’s finance cost positively by R1,4 million in the current year, R2,9 million in the previous year and R4,7 million in prior years. In accordance with the provisions of AC 103 this positive impact has been recognised as a fundamental error.

Headline earnings

Reported headline earnings of R49,4 million (15.66 cents per share) represent a substantial improvement from the previous year’s headline loss of R14,0 million ( (9.15) cents per share).

The normalised headline earnings of R65,4 million includes:

• the Gijima businesses for the full year,
• the full year benefit of the interest saving resulting from the funds raised from the rights issue, but
• excludes abnormal items.

This results in a more meaningful comparison, as does the normalised 6.78 cents headline earnings per share based on the increased issued share capital after the merger and rights issue.

Balance sheet

The balance sheet was satisfactorily restructured during the year following the completion of the rights offer and the Gijima acquisition on 3 May 2005. The rights issue was 51,8% over-subscribed and raised R160,0 million through the issue of 457,1 million shares. The businesses of Gijima were integrated and their combined fair value of R108,1 million was settled through the issue of 308,8 million ordinary shares. 14,5 million shares were issued to settle the remaining vendor claims during the year. The number of shares in issue increased from 184,3 million to 964,7 million following these transactions. The debt-equity ratio has improved from 14.2 times at 30 June 2004 to 0.61 times at 30 June 2005.

Interest bearing debt decreased by R179,3 million during the financial year under review, of which R116,8 million was the direct result of the rights issue in May 2005.
The Group’s current ratio improved from 0.89 in 2004 to 1.11 in 2005.
Net cash on hand improved from R38,3 million at 30 June 2004 to R56,8 million at 30 June 2005. Cash generation would have improved with a further R58,0 million had the net cash receivable at year end on a single transaction, which was received in July 2005, been received before the year end. Included in cash and cash equivalents is cash (R84,7 million) of AST Distributed Technology Services (Pty) Ltd of with the Group has a 70% shareholding. The utlisation of this cash is regulated by a shareholders agreement.

Contingent liabilities

At 30 June 2005 the Group had contingent liabilities in respect of registered performance bonds, bank, lease and other guarantees to the value of R2,7 million (June 2004: R2,5 million).

Capital expenditure

The capital expenditure for Gijima during the period under review was R32.8m, primarily in respect of purchases of income generating computer equipment. Commitments at 30 June 2005 to incur future expenditure amounted to R1,8m.

Events after balance sheet date

No significant events occurred after the balance sheet date.

Audit opinion

PricewaterhouseCoopers Inc. audited the summarised announcement on annual results contained herein, as well as the comprehensive financial statements from which the summarised results were derived. The unqualified audit reports on the comprehensive financial statements and the summarised financial results are available for inspection at Gijima AST Group Limited’s registered office.