Prism turnaround sustained

Revenues up 46% to R304 million.

30% decrease in operating expenses.

R77 million cash generated by operations.

Bank liabilities of R57 million eliminated.

Cash-in-hand R24 million.

The turnaround achieved by Prism Holdings Limited at its financial half-year was sustained during the latter part of the year, encompassing all aspects of its operations. The secure electronic payments company ended the 12 months to 30 June 2003 debt-free and with R24 million cash in the bank.

Revenues rose 46% to R304 million, over 80% of which was generated from the sale of products and services incorporating Prism`s home-grown intellectual property (IP).

New products and production efficiencies have enabled gross profit margins to improve by 9% from 46% to 55% while operating expenses decreased by 30% as a result of cost control measures.

Despite the group`s focus on cost containment, in excess of R31 million - some 10% of revenue - was spent on the continued development and enhancement of Prism IP, ensuring that the group`s technology remains innovative and relevant.

Effective working capital management resulted in cash generation of R77 million from operations, more than double the R32 million raised from the rights issue in February 2003.

However, with some 60% of Prism`s revenue currently US dollar-based, the strengthening of the rand has adversely impacted earnings in the second half of the year. An average exchange rate of R8.02 to the dollar was achieved in the six months to June 2003, 20% lower than the R10.01 to the dollar average achieved in the first half of the year.

This was offset, somewhat, by the group experiencing in excess of 100% growth in its SA operations. During the review period Prism secured significant orders from - and strengthened its relationships with - such blue-chip customers as MTN, Edcon, Absa, Shoprite and Pick `n Pay.

Offshore, Prism retained its position as a supplier of choice to, among others, Telekom Malaysia Bhd and its wireless subsidiary TM Touch, Petronas in Malaysia and Smart Communications Inc in the Philippines. Through its ties to SchlumbergerSema, the group also made inroads into the African region with its GSM messaging technology.

Alvin Els, Prism CEO, says the group`s outlook for the year ahead is positive.

"We`ve been through a tough period and with forecasts of a further strengthening rand, revenue growth for the next financial year presents a significant challenge. Nevertheless, we are satisfied that the issues which faced the group at the end of the previous reporting period, have been fully addressed.

"We are wiser, leaner and operationally focused on cost curtailment, production efficiencies and stringent cash management," he adds.

"In effect, Prism has `gone back to basics`. We are committed to the ongoing development of IP that meets the electronic payment requirements of customers. As such, the group remains clearly focused on its core competencies of SIM card and smart card technology, electronic payment solutions and transaction security products."

According to Els, the group is aiming at diversifying risk and minimising the exposure related to any level of dependency on specific geographic regions or key customers. New business development will be focused on working with channel partners to expand Prism technology into new geographical regions. This is being pursued in parallel with strategies to secure new business in existing regions and to sell new technologies into our existing customer base.

"Prism`s sales pipeline going forward is strong while the looming deadline for EMV conversion augurs well for the group in the months and years ahead.

"We`ve turned Prism around but we`re not going to rest on our laurels. Every action taken by the group is geared to ensure that this turnaround is sustained and sustainable. The market remains tough and while we are confident that Prism is operating within a highly lucrative space - after all, secure transacting will always be a requirement of every market, everywhere - the current strengthening of the rand presents a major challenge to growing revenue and profit in the year ahead," Els concludes.

TRUSTED TRANSACTIONS

(Incorporated in the Republic of South Africa) Registration number 1998/018949/06

Share code: PIM ISIN: ZAE000022257 ("Prism" or "the Group")

* Return to profitability
* Revenue: + 46%
* Operating expenses: - 30%
* Cash generated by operations: R77 million

Financial review

Prism is pleased to report results that indicate a significant turnaround in all aspects of the group`s business despite difficult operating conditions in local and international markets.

Revenue of R304 million was achieved for the financial year, a 46% increase over the previous year. In excess of 80% of revenue was generated from the sale of products and services incorporating the group`s own intellectual property (IP), as opposed to the re-sale of third-party technology.

The introduction of new products, coupled with production efficiencies, resulted in gross profit margins increasing from 46% to 55%. Cost curtailment and control resulted in a 30% decrease in the level of operating expenditure. The directors are pleased, however, to report that the group retained its focus on developing secure payment technology that remains both innovative and relevant to customer requirements. To this end, in excess of R31 million (10% of revenue) was spent on continued research and development during the financial year.

The strengthening of the rand had an adverse impact on the group`s earnings in the second half of the financial year, as approximately 60% of Prism`s revenue is currently denominated in US dollars. An average exchange rate of R8.02 to the dollar prevailed in the six months to June 2003, 20% lower than the average exchange rate of R10.01 to the dollar prevailing in the first half of the financial year.

Exceptional items of R7 million are reported. These mainly comprise a recoupment on the disposal of PayShop Limited UK (R11 million) and further write-downs on the proceeds on disposal of investments (R4 million).

Significant emphasis has been placed on improving the group`s cash position. R31 million was raised through a rights issue in February 2003 and cash generated from operations amounted to R77 million, reflecting an improvement in working capital management.

Deferred purchase considerations and non-current liabilities outstanding at the beginning of the financial year have been settled in full. Capital expenditure during the year amounted to R9 million. The most significant item was a new SIM card production line that will better position Prism to meet its growing customer requirements.

Prospects

Management is satisfied that the issues which the group faced during the previous financial year have been fully addressed, and continued importance will be placed on cash management and organic growth.

Prism is committed to the ongoing development of IP that meets the secure electronic payment product, solution and service requirements of its markets and customers. The group remains clearly focused on applying its core competencies to scaleable volume products in smart cards (eg SIM cards), card acceptance devices and transaction security products, and further leveraging the application and sale of these products through electronic payment solutions and services.

The group is equally committed to diversifying risk and minimising the exposure related to any level of dependency on specific geographic regions and key customers. New business development will be focused on working with channel partners to expand Prism technology into new geographical regions. This is being pursued in parallel with strategies to secure new business and customers in existing regions. Until such time that these strategies are successfully implemented, the group`s revenues will continue to be susceptible to the timing of large contracts and solutions being implemented.

Management remains cautiously optimistic regarding Prism`s prospects and trading performance for the next financial year. Offshore initiatives remain a key component of the group`s organic growth strategy and therefore the group`s operating profit is sensitive to fluctuations in the level of the rand compared to the US dollar. The rand is currently trading at a level of approximately R7.50 to the dollar compared to an average rate of R9.03 to the dollar in the 2003 financial year, which will have an impact on earnings.

Board appointments

Richard Flett and Kevin Pocock were appointed to the board of Prism during the year.

Accounting policies and review

The financial information has been presented in accordance with the South African Statements of Generally Accepted Accounting Practice. The accounting policies applied are consistent with those of the prior reporting period, with the exception of the adoption of AC 133 "Financial Instruments Recognition and Measurement", which did not have a material impact on the results.

The group`s auditors PricewaterhouseCoopers Inc have reviewed the preliminary financial information and their unqualified review opinion is available for inspection at Prism`s registered office.

Dividends

No dividends have been declared for the year ended 30 June 2003.

For and on behalf of the board

AW Els (Chief Executive Officer)
J Hnizdo (Executive Director, Finance)