Year Ended June 2006

HIGHLIGHTS

• Revenue up by 24,4% to R1,95 billion
• Profitability improved by R87,7 million
• Cash generated from operating activities up by R91,9 million to R94,5 million
• Headline earnings per share of 2,93 cents
• Current ratio of 1,35 times up from 1,09 times
• Greatly improved Black Economic Empowerment credentials

INTRODUCTION

The results for the year ended 30 June 2006 reflect good progress in entrenching the recovery of Gijima. The Group is back on course as evidenced by the profitable revenue growth reported in the results. Recorded profit for the year of R22,8 million, attributable to equity holders of the parents shows a substantial turnaround from the R64,8 million loss reported in 2005.

The Group successfully halted the revenue and margin declines reported in previous periods. However, revenue growth was curtailed by ongoing pressure from our client base to reduce costs for commoditised outsourcing, as well as delays in major public sector contract awards, where we are awaiting results. We’re pleased with the further improvement in service levels achieved during the year which contributed to both client retention and satisfaction.

The Group continues to strengthen its position in the ICT industry, both from a product and services perspective. BMI-Tecknowledge recognised Gijima as the second largest outsource company in terms of revenue during the 2005 calendar year and number one in desktop and network outsourcing.

Our Black Economic Empowerment credentials, with a 45% BEE shareholding (that is 37% directly Black owned and unencumbered), are now acknowledged as the best in the ICT Services Industry. We were rated AA by Empowerdex and 8th out of the top 200 JSE listed companies in a recent Financial Mail survey on BEE in major companies.

Three noteworthy post balance sheet events were concluded:

• A new R960 million five year contract for services with Absa Bank;
• A debtors securitisation enabling settlement of all short term interest bearing debt plus the addition of a further R133 million to cash holdings; and
• The acquisition of the remaining 30% shareholding in AST Distributed Technology Services (Pty) Ltd (DTS), previously held by Absa.

MARKET CONDITIONS

Following several years of low growth, the client spending environment finally showed signs of improvement. Opportunities arose mainly in the private sector, in the pursuit of lower infrastructure and technology costs and stronger competitive advantages. Participation by suppliers is based not only on ability to deliver cost savings effectively, but also on value added. The growth was mainly in the commodity and hardware sector, but in time this will flow through to the services market.

Major new business awards by the public sector continued to disappoint during the year. However, the State Information Technology Agency (SITA), following its own reorganisation under new management, is now better positioned than ever before to support the country and Government’s ICT objectives. Gijima was successful in a number of SITA Transversal tenders awarded during the year, and participated in several large tenders where we still await a decision from SITA. The South African Revenue Services (SARS) cancelled some tenders where we were likely to feature, but have now re-issued the tenders.

Improved industry prospects have the inevitable result of increased demand for experienced skills and this puts pressure on both staff retention and cost containment.

FINANCIAL UPDATE

Reported revenue for the year ended 30 June 2006 increased by 24,4% to R1,95 billion. Revenue from the former Gijima companies was consolidated for the full year following the merger in May 2005 of Gijima and AST. On a comparative basis, revenue growth of 6,5% would have been reflected.

The R21,5 million increase in earnings before interest, tax, depreciation and amortisation (EBITDA) was achieved despite a R13,1 million reduction in foreign exchange gains from a contribution of R20,6 million in 2005 to R7,5 million in 2006.

Amortisation of R5,8 million of the value placed on contractually secured agreements at the date of the merger with the Gijima businesses negatively impacted headline earnings. Impairments of R5 million relating to historical acquisitions also impacted profit for the period.

An effective tax rate of 43,7% was reported which was much higher than anticipated. The major differences between the reported rate and the statutory tax rate were as a result of deferred tax asset balances which were written back on discontinued operations and dormant entities. In addition deferred tax assets in a subsidiary were not raised due to uncertainty of future taxable income. This compares negatively to an effective tax rate of only 5,0% (excluding the once-off R83 million SARS trademark settlement) in 2005, which accentuates the disparity in headline earnings compared to 2005.

The Group reported profit attributable to ordinary shareholders of R22,8 million compared to a loss of R64,8 million in 2005. However, headline earnings declined by R21,2 million due to:

• Reduced foreign currency translation profits of R13,1 million;
• Increased amortisation on client contracts of R4,3 million;
• The R17,7 million swing in tax charge due to the significant change in effective tax rate, (assuming the Group had paid the statutory rate of 29% for both years); and
• An after-tax loss of R12,5 million incurred in the Group’s Namibian subsidiary. Steps have been taken to address the problems which contributed to this loss.

Net cash on hand increased by R117,2 million as at 30 June 2006. Cash flow generated from operating activities increased by R91,5 million, providing evidence of improved trading results. The Group generated R94,1 million cash from operating activities compared to R2,6 million for the comparative period, supported by reduced investments in working capital of R40,3 million during the year.

The Group incurred capital expenditure of R27,4 million during the period under review, the majority of which relates to the procurement of income generating computer equipment.

CONTINGENT LIABILITIES

At 30 June 2006 the Group had contingent liabilities in respect of registered performance bonds, bank lease or other guarantees to the value of R3,3 million (June 2005: R2,7 million).

OPERATIONAL UPDATE

Managed Services, encompassing all of the Group’s infrastructure-related activities, was negatively impacted by fierce competition and ongoing pricing pressure from existing clients. Its performance was disappointing, having been geared for growth particularly in the public sector, which has not yet materialised.

Enterprise Application Solutions effected a strong turn around during the year and performed in line with expectations as all business units increased profitability. There was a perceptible increase in private sector demand. However, project values were smaller than in the past.

The Group’s industry focused units continue to be a competitive advantage. Our mining business unit, GMSI, reported excellent results as the mining sector invested to meet demand. The financial services and retail offering maintained its edge with several noteworthy contract awards. The restructure and integration of industrial automation and manufacturing activities resulted in a return to profitability.

Towards year end, a Group realignment was initiated to entrench our client centric approach with a flatter structure. This will also further leverage the integration of Gijima and AST to extract additional efficiencies and financial benefits. The amended structure saw the formation of focused business units which are totally responsible for relationships with top nominated commercial and public sector clients. The technical competencies which were traditionally housed in Managed Services and Enterprise Application Services were consolidated into a single resource pool to further streamline the organisation and improve delivery to clients. Key products and services will be added to ensure the relevance and leadership of the Group’s offerings. The new client centric structure led to a number of executive appointments – Carel Potgieter (Group Chief Operating Officer), Chris Mahlakwane (Managing Executive, Competency Centres), Dolf Prinsloo (Managing Executive, Commercial Sector) and Livingstone Chilwane (Managing Executive, Public Sector). These executives all enjoy very good ICT business management experience.

POST BALANCE SHEET EVENTS

We secured a new five year contract with Absa following year end, valued at R960 million. Our ability to deliver on this contract was favourably benchmarked against our peer group by a large international research organisation, who assisted Absa in evaluating our ability to meet Absa’s objectives, including cost reductions and further improvement in service levels. Absa’s technology infrastructure comprises of more than 48 000 desktops, laptops and servers; 80 000 peripherals and 1 500 Local Area Networks (LANS).

We also announced the securitisation of our debtors book with effect from 31 July 2006. R256 million was raised through the issue of 5 year non-amortising debentures which were awarded a zaAA credit rating by CA Ratings after analysis of the Group’s debtors book. This enabled us to settle all short term interest bearing facilities and our liabilities to Kumba and SARS. In addition, numerous restrictive covenants and sureties were eliminated, giving the Group the ability to leverage its balance sheet more effectively.

The Group agreed terms with Absa Bank to acquire its 30% shareholding in DTS in order for Gijima to own 100% of a key contributor to Group profits. The effective date of the transaction is 1 July 2006. A positive impact on earnings per share of 28% to 3,22 cents for the 2006 financial year would have resulted, had the acquisition been effective on 1 July 2005 while headline earnings per share would have increased by 24% to 3,64 cents. By integrating DTS into the Group, Gijima is now positioned to maximise its offering for convergence in ICT.

DIVIDEND POLICY

There will be no dividend payments for the 2006 financial year but the Board’s clear intention is, however, to pay dividends as soon as practicable. In addition the Board will seek shareholder approval at its next Annual General Meeting to enable it to effect share buybacks.

CHANGES TO THE BOARD OF DIRECTORS

Hans Smith will relinquish his position as Chairman at the end of his current contract, which expires in December 2006. He will subsequently join the Board of our BEE partner Guma. The Chairman’s role will be fulfilled by Robert Gumede as of January 2007.

Marthinus Erasmus tendered his resignation from the Board in June 2006. We extend our heartfelt gratitude to him for his extensive involvement in restoring the prospects of the Group.

Two non-executive Directors resigned from the Board after year end. Johan Potgieter resigned due to work pressures. Warren Drue kindly agreed to step down in line with our strategy to streamline the Board. We sincerely thank them for their significant contribution to the creation of the new Gijima and achieving its current position in the market.

In support of rationalising the Board, Nhlanhla Mlongo will become alternate Director to Kalaa Mpinga, also in January 2007.

PROSPECTS

The realignment renewed our client focus, while streamlining our technical capabilities to bring about greater operating efficiencies. We believe that we are ideally positioned to participate in market opportunities and in the year ahead, we will focus on profitable revenue growth.

Increased revenue will be driven by the new sales structure. The public sector is on the verge of significant project awards, facilitated by the repositioned and business- like SITA. Demand from the private sector is good, particularly in the resources and financial services sectors. We will also pursue opportunities in Africa, through partnerships with key clients.

As a result of the alignments referred to above we are confident that we are well positioned to grow the business profitably and to increase our market share.

ACKNOWLEDGEMENTS

None of the strategic progress made during 2006 would have been possible without the ongoing commitment of our employees, and I thank them for their support.

Our executive team’s foresight and hard work were crucial to successfully merging Gijima and Ast, and concluding the post balance sheet events. I am grateful for your contribution which was crucial to restoring the Group’s profitability.

Finally, I also extend my thanks to our immensely talented and supportive Board of Directors. I express my sincere gratitude for your active participation and contributions in strategic matters affecting Gijima during the year.

John E Miller
CEO

27 September 2006