The impact of the reclassifications on financial assets measurement categories was as follows: Amortised FVOCI cost (Available- (loans and for-sale receivables R millions FVTPL under IAS 39) under IAS 39) Financial assets Closing balance at 28 February 2018 195 21 4 081 Change in carrying amount due to change in measurement under IFRS 9 - - (3) Opening balance at 1 March 2018 195 21 4 078 Transition to IFRS 9 Changes in accounting policies from the adoption of IFRS 9 have been applied retrospectively, however, the group has elected not to restate comparative information. Differences between the carrying amounts of financial instruments as at 28 February 2018 and 1 March 2018 resulting from the initial application of IFRS 9 are recognised in retained earnings. Accordingly, information relating to 28 February 2018 does not reflect the requirements of IFRS 9 but rather those of IAS 39. The group has elected as an accounting policy choice to not adopt the hedge accounting requirements of IFRS 9, but rather to continue applying the hedge accounting requirements of IAS 39. Adoption of IFRS 15 IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled for transferring goods or services to a customer when a customer obtains control of the goods or services. For additional information about the group's accounting policy relating to revenue recognition, refer to the accounting policies section of the financial statements. On adoption of IFRS 9 and IFRS 15, the group restated its retained earnings at 1 March 2018 as follows: R millions 2018 Retained earnings - as previously reported at 28 February 2018 Closing balance at 28 February 2018 2 543 Impact on the adoption of IFRS 9 (3) Impact on the adoption of IFRS 15 2 Opening retained earnings - 1 March 2018 2 542 The nature of the changes in the accounting policies are set out below: Project related revenue Changes in the accounting policy relate to certain broadband rollout projects where goods and services were provided to customers, in terms of which the costs and related revenue relating to equipment delivered at the respective client site, was historically recognised on a milestone basis upon delivery. The group reviewed its contracts relating to these arrangements and in terms of IFRS 15, the goods and services were concluded to be part of a combined performance obligation. In addition, taking into account the guidance in IFRS 15 as it relates to uninstalled materials, the group resolved that the cost of the uninstalled materials (delivered equipment) be excluded from measuring the progress in these contracts. This resulted in the costs (i.e. fulfilments costs) and related revenue billed to the client (contract liabilities) in respect of open contracts on adoption date, being deferred in the opening balance sheet and subsequently recognised during the current financial reporting period. Cloud services and related licences The group reviewed its accounting policy for the sale of cloud services (and related licences) on adoption of IFRS 15. Previously, management applied their judgement in determining the accounting in accordance with the "risks and rewards" approach followed under IAS 18, which resulted in these arrangements being accounted for by the group as the principal. One of the considerations applied in reaching this conclusion was the consideration of credit risk. Under IFRS 15, based on the concept of "control" and the transfer thereof; and the change in the criteria to be considered when assessing whether an arrangement should be accounted for on a principal or agent basis, these arrangements are now accounted for by the group as an agent in terms of IFRS 15. One of the previously relevant indicators, i.e. credit risk is no longer included in the guidance under IFRS 15 further supporting the conclusion reached. Transition to IFRS 15 Changes in accounting policies from the adoption of IFRS 15 have been applied retrospectively, however, the group has elected not to restate comparative information. The cumulative impact of IFRS 15 is recognised as an adjustment in retained earnings, on 1 March 2018. Accordingly, information relating to 28 February 2018 does not reflect the requirements of IFRS 15 but rather those of IAS 18. The group applied the following practical expedients when applying IFRS 15: 1. The group has elected to apply IFRS 15 only to contracts that are not completed as at the date of initial application. 2. For contracts that were completed that had variable consideration, the transaction price at the date that the contract was completed was used, rather than estimating variable consideration amounts. 3. For contracts that were modified before the adoption date, the contracts were not restated for these contract modifications and instead, the aggregate effect of all modifications that occurred before the adoption date were considered in aggregate when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price to the satisfied and unsatisfied performance obligations. 4. For all reporting periods presented before the date of initial application, we have elected not to disclose the amount of the transaction price allocated to the remaining performance obligations and an explanation of when we expect to recognise that amount as revenue. 5. We have elected when, at contract inception, the period between the transfer of a promised good or service and payment for that good or service will be one year or less, not to account for the effects of the time value of money; and 15. STANDARDS AND INTERPRETATIONS IN ISSUE BUT NOT YET EFFECTIVE The group is required to adopt IFRS 16 Leases from 1 March 2019. The group has made an initial assessment of the impact that the standards will have on its financial statements and is in the process of quantifying the impact on equity as at 1 March 2019. Further the group is in the process of implementing changes to its processes relating to leases. IFRS 16 Leases IFRS 16 was issued in January 2016. It will result in almost all leases being recognised on the statement of financial position by lessees, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. Practical expedients are available for short-term and low-value leases. Lessors continue to classify leases as operating or finance, with IFRS 16's approach to lessor accounting substantially unchanged from its predecessor, IAS 17 Lease (IAS 17). The group expects that the most significant impact of the new standard will result from its current property and network site operating leases. As at the reporting date, the group has non-cancellable operating lease commitments of R481 million. Of these commitments, approximately R73 million relates to non-lease components of operating leases which will continue to be recognised as an expense in profit or loss as they are incurred. For lease commitments (excluding non-lease components, short-term and low-value leases) the group will recognise lease liabilities, representing the present value of the future minimum lease payments discounted at a rate appropriate and after taking into account the lease term, value, economic environment and security over the asset applicable, on 1 March 2019, and corresponding right-of-use assets in respect of these leases, adjusted for prepayments recognised as at 28 February 2019. On adoption of IFRS 16 operating lease costs (other than short-term and low value lease) will no longer be recognised as part of operating expenses. The group intends to apply a threshold of R100 000 for assessing what constitutes low-value assets. For the year ended 28 February 2019 the group has recognised lease expenses of R176 million. Of these operating lease expenses, approximately R39 million relates to non-lease components of operating leases which will continue to be recognised as an expense in operating expenses as they are incurred. As a result of the new accounting rules, EBITDA (as defined) used to measure segment results is expected to increase, as the total operating lease payments were previously included in EBITDA (as defined) under IAS 17. The group will recognise depreciation on the right-of-use assets and interest on the lease liabilities over the lease term in profit or loss - these charges are excluded from EBITDA (as defined). Due to the impact of reducing finance charges over the life of the lease, the impact on earnings will initially be dilutive, before being accretive in later periods. Furthermore, leases denominated in currencies that are not the functional currency of the operation will increase foreign exchange exposure. Therefore, the group expects that net profit after tax may decrease for 2019 as a result of adopting the new standards. Cash generated from operations will increase, as lease costs will no longer be included in this category of cash flows. Interest paid will increase, as it will include the interest portion of the lease liability repayments. This is expected to have a net positive impact on net cash generated from operating activities. Net cash used in financing activities will increase, as the capital portion of lease liability repayments will be included within repayment of borrowings. The group's activities as a lessor are not material and hence the group does not expect any significant impact on the financial statements. However, some additional disclosures will be required in the next reporting period. The Group will apply the standard using the modified retrospective approach on 1 March 2019 with optional practical expedients and will apply its election consistently to all of its leases. Therefore, the cumulative effect of adopting IFRS 16 will be recognised as an adjustment to the opening balance of retained earnings at 1 March 2019, with no restatement of comparative information. Right-of-use assets will be measured at the amount of the lease liability on adoption (adjusted for any prepaid lease expenses). The group has elected to apply the practical expedient to not reassess the lease definition. Other standards The following relevant amended standards and interpretations are not expected to have a significant impact on the Group's consolidated financial statements. - IFRIC 23 Uncertainty over Income Tax Treatments. 16. REPORTING SEGMENTS An operating segment is a component of the group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the group's other components. The group determines and presents operating segments based on the information that is internally provided to the group's executive committee and board of directors, who is the group's chief operating decision-makers ("CODM"). An operating segment's operating results are reviewed regularly by the CODM to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. Segment results that are reported to the CODM include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets (primarily the group's headquarters and the subgroup's headquarters). The segmental information has been prepared to highlight the continuing and discontinued operating segments. This provides more insight into revenue and earnings before interest, tax, depreciation and amortisation before capital items (EBITDA before capital items), disclosed in the statement of comprehensive income. The below is categorised in accordance with the group's reporting segments. The segment revenues and earnings before interest, tax, depreciation, amortisation and capital items (EBITDA and capital items) by each of the group's reportable segments are the key performance measures reviewed by the CODM and are summarised as follows: Revenue EBITDA before capital items Growth Growth R millions 2019 2018 % 2019 2018 % Altron Nexus 1 185 1 155 3 123 80 54 Altron Bytes Document Solutions 1 498 1 353 11 77 70 10 Altron Bytes Managed Solutions 1 168 1 027 14 78 74 5 Altron Bytes People Solutions 458 438 5 29 29 Bytes Secure Transaction Solutions 1 141 1 073 6 289 253 14 Bytes Systems Integration 2 027 1 897 7 119 123 (3) Altron Karabina 105 - 10 - Altron ICT South African operations 7 582 6 943 9 725 629 15 Bytes Technology Group UK 6 373 6 088 5 368 206 79 Other international operations 285 244 17 7 16 (56) Altron ICT international operations 6 658 6 332 5 375 222 69 Corporate and consolidation (other) - - 29 33 (12) Revenue EBITDA before capital items Growth Growth R millions 2019 2018 % 2019 2018 % Altron ICT 14 240 13 275 7 1 129 884 28 Altron Netstar* 1 521 1 378 10 582 490 19 Altron Arrow 499 560 (11) 29 33 (12) Corporate and consolidation (other) (537) (470) (14) (107) (94) (14) Normalised continuing operations 15 723 14 743 7 1 633 1 313 24 Foreign currency gains on deferred acquisition liability 6 Retrenchment and restructuring costs (26) (77) Acquisition related costs (8) Continuing operations as reported 15 723 14 743 7 1 607 1 234 30 Altech Multimedia 775 974 (20) 15 44 (66) Altech Autopage - - 5 (23) 122 Powertech Group 427 1 964 (78) 34 (13) 362 Discontinued operations 1 202 2 938 (59) 54 8 575 Altron Group 16 925 17 681 (4) 1 661 1 242 34 Segment EBITDA before capital items can be reconciled to operating profit before capital items as follows: R millions 2019 2018 EBITDA before capital items 1 661 1 242 Reconciling items: Depreciation (179) (149) Amortisation (134) (103) Amortisation of costs incurred to fulfil contracts* (253) (199) Total operating profit before capital items 1 095 791 Discontinued operations profit before capital items (54) (8) Continuing operations profit before capital items 1 041 783 * Costs incurred to obtain contracts and capital rental devices have been reclassified to amortisation. The expense was previously included in operating costs before capital items. Revenues/EBITDA before capital items from segments below the quantitative thresholds are attributable to smaller operating segments of the Altron group. None of those segments have met any of the quantitative thresholds for determining reportable segments for the reportable periods. Quantitative thresholds have been calculated based on totals for the Altron group and not per subgroup. 17. CORRECTION OF PRIOR YEAR ACCOUNTING TREATMENT During the current year, the group undertook a detailed review of the contracts with customers and vendors in respect of specific business operations. Upon conclusion of this process, the group discovered that the terms and conditions of certain contracts had not been correctly accounted for historically. As a consequence, these contracts had an impact on the presentation and disclosure of the prior year balances. Matters identified The group sells goods under finance lease arrangements in certain parts of its business. As part of these transactions, the group enters into back-to-back arrangements with an external party to receive cash from the transaction on day one. As the customer settles the monthly lease instalments with the group, the group settles its monthly instalments with the external financier. In previous years, the finance lease asset and the finance lease liability were set off on presentation in the balance sheet. Upon analysis of the IFRS requirements for set off, i.e. that the group currently has a legally enforceable right to set off the recognised amounts and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously, were not met. Due to the offset requirements not being met in accordance with the requirements of IFRS, the finance lease asset and finance lease liability needed to be presented separately on the balance sheet and as a result the comparative balances were accordingly restated. The group enters into arrangements in terms of which it acts as a clearing/collecting agent on behalf of certain merchants. In terms of these arrangements, the group collects the cash on behalf of the merchant which is paid into the group's bank account, after which it is paid over by the group to the merchant immediately once the payment clears the bank account. In prior years, the group netted the amounts received into its bank account and the amounts payable to the merchant when presenting its balance sheet. Upon reflection, it was concluded that the balance sheet presentation as previously applied was not appropriate and the cash received as well as the payable to the merchant should have been included on a gross basis, resulting in the comparative balances being restated. As this arrangement had an impact on the cash on hand balances maintained by the group, the statement of cash flow has been restated to reflect the impact of the additional cash on hand at the end of the preceeding reporting periods. The above has been corrected by updating each of the affected financial statement line items for the prior period noted below. The corrections did not have an impact on the consolidated statement of comprehensive income: Year ended 28 February 2017 Year ended 28 February 2018 As As previously previously R millions reported Adjustments Restated reported Adjustments Restated Statement of financial position (Extract) Non-current assets Finance lease assets 98 89 187 113 77 190 Current assets Trade and other receivables 3 270 90 3 360 2 669 83 2 752 Cash and cash equivalents 768 299 1 067 1 373 173 1 546 Non-current liabilities Loans 1 413 89 1 502 1 923 77 2 000 Current liabilities Loans 314 90 404 312 83 395 Trade and other payables 3 582 299 3 881 3 177 173 3 350 28 February 2018 As previously R millions reported Adjustments Restated Cash flow (Extract) Cash flows from operating activities Cash generated from operations 936 126 1 062 Cash flow (Extract) CASH FLOWS FROM OPERATING ACTIVITIES Cash generated from operations 936 126 1 062 CASH FLOWS USED IN FINANCING ACTIVITIES Loans advanced 67 (128) 195 Loans repaid (627) 128 (755) Net decrease in cash and cash equivalents (549) 126 (423) Net cash and cash equivalents at the beginning of the year 329 173 502 Net cash and cash equivalents at the end of the year (204) 299 95 18. COMMITMENTS R Millions 2019 2018 Non-cancellable operating leases At year-end the group had outstanding commitments under non-cancellable operating leases, which fall due as follows: Within one year Property 114 155 Plant, equipment and vehicles 13 22 127 177 One to five years Property 250 252 Plant, equipment and vehicles 15 48 265 300 Thereafter Property 44 35 Plant, equipment and vehicles 45 1 89 36 Total 481 513 Capital commitments Significant capital expenditure authorised and contracted for at the end of the reporting period but not recognised as liabilities are as follow: Property, plant and equipment 6 - 6 - 19. OTHER MATERIAL TRANSACTIONS DURING THE CURRENT YEAR During the current year, the group renegotiated its long-term debt financing with the banks at more favourable terms. A long-term facility of R2 billion was granted to the group of which R1.3 billion was drawn at 28 February 2019. The previous drawn facility of R1.2 billion was settled on 28 February 2019. The remaining undrawn facility at year-end is R700 million. At year-end, R267 million is repayable within 12 months and R1 033 million repayable after 12 months. During the current year the group acquired property, plant and equipment at a cost of R190 million, consisting mainly of land, buildings and leasehold improvements, motor vehicles, furniture and equipment and IT equipment and software. During the current year the group disposed of property, plant and equipment with a carrying amount of R43 million, consisting mainly of land, buildings and leasehold improvements and motor vehicles, furniture and equipment. SUPPLEMENTARY INFORMATION (TOTAL OPERATIONS) R millions 2019 2018 Total operations Depreciation and amortisation* 566 451 Net foreign exchange (profits)/losses (11) 43 Cashflow movements Capital expenditure (including intangibles) 283 278 Net additions to costs to fulfil contracts (42) 58 Additions to costs to fulfil contracts 246 257 Amortisation of costs incurred to fulfil contracts during the year (353) (199) Contract costs written off (35) - Lease commitments 481 513 Payable within the next 12 months: 127 180 Payable thereafter: 354 333 Weighted average number of shares (millions) 371 370 Diluted average number of shares (millions) 374 373 Shares in issue at the end of the year (millions) 371 371 Ratios EBITDA margin (%) 9,8 7,0 ROCE (%) 21,4 17,8 ROE (%) 21,3 16,7 ROA (%) 12,0 9,9 RONA (%) 17,3 14,9 Current ratio 1,1:1 1,1:1 Acid test ratio 0,9:1 0,9:1 * Amortisation of contract costs and capital rental devices have been reclassified from operating expenses to depreciation and amortisation. CONTACT US Altron 4 Sherborne Road, Parktown 2193 Gauteng SOUTH AFRICA PO Box 981, Houghton 2041 Gauteng SOUTH AFRICAHomeDate: 09/05/2019 08:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.