| Tue 13 Feb 2001, 0:00 | | Ast Group Limited - Unaudited Results |
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AST Group Limited
REGISTRATION NUMBER 1998/021790/06
Unaudited results for the six months ended 31 December 2000
Financial highlights
Group revenue up 44%
Headline earnings per ordinary share up 37%
Annuity income 56%
Foreign currency earnings 12%
Cash on hand R144 million
Revenue split
79% ICT Division
15% Industry Solutions Division
6% e-Business Division
R52m revenue in the Manufacturing sector, previously recognised in ICT is now
reported in Industry Solutions
Chairman's report
INTRODUCTION
I am proud to share yet another set of outstanding achievements with you.
However, before I do that, allow me to present an overview of the activities
and goals of the Group. We offer a full spectrum of Information and
Communications Technology (ICT) services and, with specialised business
knowledge of a selection of industries, we provide comprehensive, vertically
integrated solutions to our clients in those markets. Our clients are large
corporates and a growing number of small to medium enterprises (SMEs). AST has
a highly successful business model and a collaborative approach that emphasises
long-term strategic partnerships, which have enabled the Group to grow at a
compound rate of more than 150% since its listing in 1998. Our go-to-market
model of Plan - Build - Run - Leverage forms the foundation for this
spectacular growth.
The IT industry in general faced tough trading conditions during the latter
half of last year. AST certainly had to overcome a number of challenges, but
even under these less than ideal conditions, we achieved yet another milestone
during the six months under review. For some time now it has been our goal to
consistently achieve more than R100 million revenue per month. That we have now
achieved this goal is proof that our strategic partners accept our business
model and that the Group's market share has matured to such an extent that the
next dynamic steps can be taken. The negative performance of the Nasdaq once
again underscores the fact that hype will never deliver the desired results.
Consistency in creating value for clients, while maintaining fair margins with
good cost management, will always prevail. AST assists its clients in fully
exploiting the connectivity provided by the Internet, but without creating
unrealistic expectations, either with our clients or in the minds of our
shareholders. As much as we respect our clients, so we respect our shareholders
FINANCIAL PERFORMANCE
We have once again achieved our targets and increased our market share. The
R689 million in revenue earned during the period under review represents a 44%
growth over the corresponding period last year. We achieved headline earnings
growth of 37%, which is 12c a share against the background of a weak business
cycle. We are beginning to see a slight decrease in net margins, simply because
of larger investments in creating the AST of tomorrow. We have expensed R12
million on medium term strategic positioning projects that will start showing
returns in the foreseeable future. AST does not foresee the margin dropping
below 11% for the full financial year.
Cash generated from operations was R67 million and debtor days are at 54. The
Group remained cash-positive month on month and our clients serviced their
accounts on time, which we take as evidence that they value their relationship
with AST. After the payments made for the various acquisitions, the GEM
transaction representing the lion's share, cash on hand still exceeds R140
million. The scalability of the Group's technology infrastructure is beginning
to have a visible effect. Revenue versus headcount growth shows a ratio of 6 to
1. This is a trend that will continue into the future, though at a smaller
differential, and it will contribute towards maintaining the Group's overall
margins. Foreign currency revenue, as a percentage of total earnings, grew to
12% and we believe that this is sustainable over the long term, notwithstanding
the Group's rapid growth in South Africa.
OPERATIONAL OVERVIEW AND OUTLOOK
The Group is performing well and we are unlocking synergies between our various
business entities, as intended. There is a marked increase in cross-selling.
Clients are benefiting from the focus we have placed on co-ordinated
interfacing by means of our customer relationship management system. Our
clients benefit from the AST Group's knowledge of their strategies and systems,
which enables the AST Group to add value throughout the client's value creating
cycle.
GLOBAL MANAGEMENT CONSULTING
In Bentley West, AST has a mature management consulting business, involved in
mission critical and strategic positioning projects on behalf of our customers
throughout southern Africa. Our vision of having a global management consulting
capability is being realised. In its most significant international expansion
to date, AST acquired GEM in Australia and gained access to the boardrooms of
prominent Australian companies.
THE ICT SERVICES DIVISION
AST now has 28 offices nationwide and is servicing its clients through 62
service centres - possibly the most extensive coverage by any ICT services
company in South Africa. AST ESM was restructured as a supplier and integrator
of best-of-breed point solutions, which was its original mandate. AST DTS, our
distributed technology services business, has successfully adopted best
practice methodologies, allowing it to manage its clients' remote operations,
progressively improving service levels while reducing total cost of ownership.
Our various network command centres are being integrated into our Group Network
Command Centre in Midrand, from where the large call centres will be supported.
AST Enterprise Hosting now hosts more than 300 corporate websites on a
world-class technology infrastructure, comprising multiple mainframes, more
than 100 Unix servers and over 3 000 Intel-based servers; currently we support
more than 85 000 connected devices nationwide. AST's legacy "body shopping"
entities have been successfully transformed to provide high value-adding
solutions on a project basis. The Offshore Development Centre is a new and
exciting initiative and it has secured the first large offshore contract for
the Group in Scotland.
THE INDUSTRY SOLUTIONS DIVISION
Focusing our activities through industry expertise on specific market segments
is AST's way to unlock maximum value for our customers. The major contribution
came from the financial services focus area. AST has extensive expertise in
this business area, complemented by a number of exciting products. AST Mining
has expanded its customer base through its unique software products in mine
modelling and risk management. AST Manufacturing has made a major breakthrough
with a global client. This business unit has taken a dominant position in the
market in helping our clients in the manufacturing industry to exploit
technology to its fullest extent, with vertically-integrated solutions.
Business in our health and telecommunications focus areas has grown
substantially and we believe that the next reporting period will see further
solid growth. We are extremely pleased with AST's recent successes in the
government sector.
THE E-BUSINESS DIVISION
It is our stated policy that we exploit the Internet on behalf of our clients.
It is not only being "first to market" but also achieving "first to volume"
that secures long-term benefits. AST is setting the pace in a number of areas,
with the success of ProcureTrade deserving special mention. This procurement
exchange has received wide acclaim, with BMI Tech rating ProcureTrade as a
leader in its field in South Africa. AST's initiatives to establish global hubs
to facilitate business-to-business commercial traffic will gain further
momentum when AST expands these offerings to include business services and
business-to-consumer commercial applications. The Group's entry into supply
chain management through our Incito initiative will position AST once again at
the forefront of this new e-commerce wave.
AUSTRALASIA
The GEM acquisition in Australia has been finalised. The marriage between
Bentley West and GEM is working well and we are very happy with this latest
addition to the AST stable. Bentley West and GEM are sharing knowledge bases
and we expect this synergy to gather momentum in the period to June 2001.
Australia is strategically important for AST and we are happy with the progress
we have made in establishing a focused business, targeting the mining,
manufacturing and financial services industries. AST's established Plan - Build
- Run - Leverage approach forms the basis for our expansion programme into
Australasia.
BEE POLICY
The Group's strategy of forming joint ventures with suitable black
entrepreneurs is paying dividends for all the parties involved and we intend to
continue with this approach, with added impetus. We engage our black partners
as business entities that assume full accountability in their own right, while
AST assists in building their capacity through active skills-transfer
programmes. The Government Employees Pension Fund outsourcing contract, which
the Group in partnership with our BEE partner Thuso recently secured,
vindicates AST's BEE policy.
CAPITAL
The capital expenditure for the Group during the period was R37,2 million,
allocated to computer equipment, required for business continuity, and land and
buildings. Commitments entered into over the same period to incur expenditure
amounts to R14,4 million.
PROSPECTS
The AST Group's prospects are exciting. We believe that the growth is
sustainable. We are entrenching our successful strategic partnership business
model on a wider scale. Our industry solutions focus has been a success and our
clients appreciate the capability of AST to add value that in turn translates
into additional opportunities for the Group. AST's e-Business Division has
positioned the Group at the forefront of technology exploitation. Technology is
opening up more areas in which customers can achieve cost savings, presenting
growth opportunities for AST's various business units. We are increasing our
revenue pool through competitive successes by being faster, better, more
reliable and more innovative, finding new ways to exploit technology to help
our clients to grow and prosper. AST is also gaining market share by hosting
more and more of the client's non-core functions. We are, of course, also
"going global" to expand the revenue pool, but in this we are very diligent and
selective. The cash resources demonstrate AST's ability to continually generate
positive cash flow and this enables the Group to take advantage of the
opportunities that the global market currently has to offer. Consolidation in
the South African IT industry, involving listed as well as unlisted companies,
will remain a feature during 2001. The AST Group will participate actively in
this process, further unlocking value for our shareholders while enhancing our
offerings. Customer care, integrity, high quality products, services and
solutions and the development of people remain our major drivers.
DIVIDEND POLICY
The AST Group's current policy is not to pay dividends. Earnings generated are
utilised to fund future growth and development. However, the Board of Directors
will, from time to time, review this policy in the light of prevailing
circumstances.
CONCLUSION
I look forward to an exciting 2001 and beyond. Various opinion surveys
conducted among key clients indicate that AST is realising its vision of being
the strategic supplier of choice, by consistently and effectively delivering
solutions that better position our clients to be winners in their respective
industries. We are well on our way to being counted as one of the top three ICT
companies listed on the JSE, which, along with establishing a global presence,
has been our long-term goal. We are very proud of our employees and we invest
in the intellectual capital that they represent through training and
development programmes. AST's staff-retention record is of the best in the
industry. All our employees are shareholders.
On behalf of the Board, I wish to extend our sincere thanks to AST's executive
and senior management teams and their personnel for their outstanding
contributions and for their dedication to creating value for our clients and to
sustain growth in EPS. We are also grateful to our many clients, business
partners and investors who, with their continuing support and participation,
are contributing to the success of this great company.
For and on behalf of the Board
Gerrie J de Klerk
Executive Chairman
14 February 2001
Financial policy statements
* The financial statements are prepared in accordance with and comply with the
Statements of Generally Accepted Accounting Practice.
* The financial statements have been prepared on the historical cost basis.
* The accounting policies of the Group are consistent in all material respects
with those applied in the previous year, except for the change in the
accounting treatment of goodwill due to the issue of AC 131. Goodwill is
amortised to income over its expected useful life.
Income statement
for the six months ended 31 December 2000
Unaudited Unaudited Audited
31 December 31 December 30 June
2000 1999 2000
(6 months) (6 months) (12 months)
R'000 R'000 R'000
Revenue 688 785 479 062 1 027 103
Operating profit 81 203 59 894 117 885
Net interest received 5 862 4 912 10 967
Profit before tax 87 065 64 806 128 852
Tax (15 905) (17 511) (25 429)
Profit after tax 71 160 47 295 103 423
Minority interest (5 328) 30 -
Amortisation of goodwill (23 820) - -
Net profit for the period 42 012 47 325 103 423
Depreciation 35 735 10 657 23 827
Net interest received 5 862 4 912 10 967
Interest received 7 113 5 038 12 337
Finance costs (1 251) (126) (1 370)
Headline earnings per ordinary share
(cents) 12,01 8,75 19,10
Fully diluted headline earnings
per ordinary share (cents) 11,59 8,50 18,72
Earnings per ordinary share (cents)
(after amortisation of goodwill) 7,67 8,75 19,10
Fully diluted earnings per ordinary
share (cents) (after amortisation
of goodwill) 7,39 8,50 18,72
Weighted average number of shares 548 034 540 859 541 517
Fully diluted number of shares 568 197 556 640 552 500
Number of shares in issue 551 362 542 913 546 321
Reconciliation of headline earnings
Net profit for the period 42 012 47 325 103 423
Amortisation of goodwill 23 820 - -
Headline earnings 65 832 47 325 103 423
Balance sheet
as at 31 December 2000
Unaudited Unaudited Audited
31 December 31 December 30 June
2000 1999 2000
R'000 R'000 R'000
Assets
Non-current assets 508 539 221 674 270 147
Property, plant and equipment 117 718 66 795 96 207
Goodwill 231 251 - 1 179
Unlisted investments 28 582 15 361 41 533
Deferred tax asset 130 988 139 518 131 228
Current assets 391 001 276 126 405 987
Inventories 8 332 2 854 4 095
Accounts receivable 239 162 134 597 197 941
Cash and cash equivalents 143 507 138 675 203 951
Total assets 899 540 497 800 676 134
Equity and liabilities
Capital and reserves 390 624 347 340 348 606
Minority interest 5 328 58 -
Non-current liabilities 123 881 15 086 35 507
Interest-bearing liabilities 53 667 14 123 15 763
Amounts due to vendors 69 376 - 18 921
Deferred tax liability 838 963 823
Current liabilities 379 707 135 316 292 021
Accounts payable 307 430 122 427 268 621
- Trade creditors 192 699 84 998 155 501
- Provisions and other 114 731 37 429 113 120
Amounts due to vendors 55 474 - 17 813
South African Revenue Service 16 803 12 889 5 587
Total equity and liabilities 899 540 497 800 676 134
Net asset value per ordinary share
(cents) 70,85 63,98 63,81
Fully diluted net asset value per
ordinary share (cents) 68,75 62,40 63,10
Cash flow statement
for the six months ended 31 December 2000
Unaudited Unaudited Audited
31 December 31 December 30 June
2000 1999 2000
(6 months) (6 months) (12 months)
R'000 R'000 R'000
Operating activities
Cash generated from operations 67 426 55 871 202 806
Interest received 7 113 5 038 12 337
Finance costs (1 251) (126) (1 370)
Normal tax paid (11 064) (1 112) (8 287)
Cash from operating activities 62 224 59 671 205 486
Investment activities
Acquisition of subsidiaries
and businesses (78 305) (14 432) (26 677)
(Increase)/decrease in investments (7 049) 15 763 (10 409)
Additions to property, plant
and equipment (39 134) (17 287) (61 350)
Proceeds from the sale of property,
plant and equipment - - 302
Cash used in investment activities (124 488) (15 956) (98 134)
Financing activities
Proceeds from the issue of
ordinary shares - - -
Proceeds from long-term borrowings 1 942 13 862 15 651
Payment of capital element of
finance lease liabilities (122) (70) (220)
Cash from financing activities 1 820 13 792 15 431
Net (decrease)/increase in cash and
cash equivalents (60 444) 57 507 122 783
Cash and cash equivalents at the
beginning of the period 203 951 81 168 81 168
Cash and cash equivalents at the
end of the period 143 507 138 675 203 951
Statement of changes in equity
for the six months ended 31 December 2000
Unaudited Unaudited Audited
31 December 31 December 30 June
2000 1999 2000
(6 months) (6 months) (12 months)
R'000 R'000 R'000
Share capital 55 54 55
Balance at the beginning of the
period 55 54 54
New shares issued during the period - - 1
Share premium 218 160 276 994 220 920
Balance at the beginning of the
period 220 920 294 033 294 033
Premium on new shares issued
during the period 11 250 1 204 8 071
Share issue expenses written off (428) (267) (1 021)
Vendor's claims (13 582) 587 55 216
Goodwill arising on the acquisition
of subsidiaries and businesses - (18 563) (135 379)
Distributable reserves
Retained earnings 168 556 70 446 126 544
Balance at the beginning of
the period 126 544 23 121 23 121
- As previously reported 126 544 28 136 28 136
- Change in accounting policy
regarding deferred tax - (5 015) (5 015)
Net profit for the period 42 012 47 325 103 423
Foreign entity translation reserve 3 957 101 733
Balance at the beginning of the
period 733 (7) (7)
Currency translation differences
for the period 3 224 108 740
Non-distributable reserves (104) (255) 354
Balance at the beginning of the
period 354 (94) (94)
Currency translation differences
for the period (458) (161) 448
Balance at the end of the period 390 624 347 340 348 606
Directors: Gerrie J de Klerk (Executive Chairman), Jan J van Zyl (Chief
Executive Officer), Thinus Mulder (Chief Financial Officer), Pieter Bouwer,
Marthinus Erasmus, Joop Groeneveld, John Miller, John Ramatsui, Phillip
Vermeulen, Malcolm Macdonald*, Jac van der Walt* *Non-executives
Registered office: Lords Office Estates, 276 West Street, Centurion, 0157,
South Africa, Tel: (012) 674-7600, Fax: (012) 663-9922
Transfer secretaries: Ultra Registrars (Pty)Limited (Registration number
2000/007239/07) Diagonal Street, Johannesburg, 2001 (POBox 4844, Johannesburg,
2000)
info@ast.co.za www.ast.co.za
