| Mon 13 Aug 2001, 0:00 | | Ast Group - Audited Results |
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AST Group
REGISTRATION NUMBER 1998/021790/06
Audited Results for the year ended 30 June 2001
Financial highlights
Revenue up 47%
Operating profit up 55%
Headline earnings per ordinary share up 37%
Annuity income 52%
Dollar-hedged income 11%
Cash on hand R161m
Cash generated from operations R172m
Chairman's report
Introduction
It is my privilege to report yet another set of excellent results. I am very
pleased with the progress of the AST Group during the past twelve months,
against the backdrop of a global slowdown in corporate spending and the
resulting poor sentiment towards ICT in general. AST had little exposure to
the ".com bubble" and, with our large, annuity-based income, our business
model was not as exposed to the medium-term downward trends. The growth in
AST's revenue base for the year far exceeded that of the market and we
attribute this to several factors:
* Recognition of the AST Group brand is on the increase and progress during
the past year suggests that no large project goes to tender without the AST
Group being invited to participate.
* The matrix structure of the Group - vertical domain knowledge in industry
sectors and delivery capabilities in the generic horizontals - is delivering
more value added cross-selling opportunities.
* Our focus in specific industry segments, through which we deliver
innovative, efficient and cost-reducing solutions to our clients, positions
AST as the ideal technology partner for corporate South Africa.
* Our low dependence on products cushioned us from distribution channel
problems and our focus on services and solutions, which kept demand buoyant,
remains the sweet spot of the industry going forward.
Financial performance
Revenue increased by 47%, from R1 027 million to R1 514 million. Organic
revenue growth has exceeded 40% per annum for the last three years.
Acquisitions were made in areas in which AST needed more skills and/or
software and/or niche know-how (IP). An example is the strategic consulting
services transaction (GEM) in Australia. Acquisitions contributed only 6%
towards turnover.
Operating profit before interest and goodwill increased by 55%, from
R118 million to R183 million, while the operating margin increased from
11,5% to 12,1%. Critical mass, best practice and utilising our extensive
infrastructure have all contributed to this improvement.
Goodwill amortisation amounted to R126,6 million, treated in accordance with
AC131. Goodwill is amortised over the warranty periods of the relevant
transactions and is based on the achievement of post-acquisition profit
warranties.
Headline earnings per share increased by 37%, from 19,1c per share to 26,2c
per share.
AST utilised cash, where possible, to fund acquisitions because the use of
scrip at current share price levels is deemed to be too expensive and not in
shareholders' interest. AST maintained strong cash-flows as is demonstrated
by cash generated from operations of R172 million. After disbursing more
than R120 million for acquisitions plus further investments in Business
Services and e-Businesses, cash on hand is still R161 million. AST's cash
conversion rate remains above 94%.
Strategic overview
AST is a services company and has made a conscious decision to own limited
software intellectual property. Where we do, it is to strengthen our ability
to exploit information on behalf of the client. Our current policy is to
support in-house R&D only where the installed base and the periphery revenue
stemming directly from such software IP, is profitable through AST's direct
exploitation. AST's aim is not to create a research and development
capability to compete with the rest of the world - that we leave to the
Microsofts and IBMs.
AST is exploiting the Internet and Intranet to drive business efficiencies,
reduce costs and to establish, for our clients, new and innovative ways of
conducting business. We believe that - throughout the world - business has
only scratched the surface in the exploitation of the Internet and that the
potential benefits to business and governments are huge. Since its
inception, AST has been an ICT services company, exploiting best-of-breed
technologies on behalf of our clients, and this remains our model into the
future. AST's services focus has brought us through the current downturn and
will drive superior growth when markets stabilise. At a time when most of
the companies in the IT sector are experiencing pressure on their
profitability, AST's operating margin has increased.
There is a perceived overhang on AST shares, due to the substantial
shareholding that Iscor has in AST. The management of AST and Iscor reached
an agreement towards the end of June 2001 to facilitate a process for the
orderly placement of the shares. I wish to thank Iscor for its constructive
management of this process. We appreciate Iscor's professional approach to
exercising its fiduciary duties - a model shareholder indeed. Both Iscor
Steel and Kumba Resources will maintain their representation on the AST
Board and we look forward to their continued contribution. AST is proud of
the value that we were able to unlock for Iscor and we look forward to
continuing this relationship as their strategic business partner. At the
time of our initial listing in September 1998, the agreement with Iscor
accounted for more than 70% of the revenue for that year. Even though our
business with Iscor has grown substantially since then, Iscor contributes
less than 20% of AST's revenues this financial year.
International expansion remains an important priority for the AST Group -
not only in order to capitalise on opportunities which arise as AST's
clients expand globally themselves, but also in order to diversify the
revenue base of the company. Although business opportunities abound, we
follow a conservative approach that includes a stringent due-diligence
process prior to committing to any acquisition. This may result in a longer
time to finalise, but reduces our risk profile.
Our strategy remains focused on the expansion in the Australian region, with
any activities in Europe remaining, for now, opportunistic. Before the
acquisition of GEM consulting in November 2000, AST's Australian operation
was limited to a software products focus. Together, the software products
business and GEM, which provides high-level strategic and business
consulting, are now also creating down-stream system integration
opportunities. Our strategic plan for the Australian market includes a well-
specified roadmap for expanding our IT services capabilities in the region
including outsourcing. Currently, our vertical focus includes financial
services, manufacturing and mining. The exchange of intellectual capital and
know-how between AST's South African and Australian consulting divisions has
materialised as anticipated. A management team dedicated to AST's Australian
operations has been put in place during the period under review to avoid
impacting on the focus of the SA management team.
Empowerment policy (bee)
The AST Group's BEE exposure extends beyond direct equity holding. This
takes place in the form of joint ventures with BEE companies who have real
delivery capacity. AST repackaged Workforce Solutions and merged it with
Thuso IT, in which AST holds a minority stake. Thuso is today one of the
largest Black Economic Empowered ICT companies in South Africa. Our BEE
model has gained acceptance in the public sector, as is evidenced by the AST-
Thuso IT Consortium being awarded the Government Employees Pension Fund
(GEPF) outsourcing and system migration project - a strategically important
success for AST. The Group's historic exposure to the public sector has been
low, as a proportion of total activities. However, we are pleased to
announce that the contribution from this sector has grown by 220%. We
currently interact with eight government and public sector departments and
are exploring a number of further prospects.
Prospects
Some weakness in demand was felt during the period November 2000 to end
February 2001. However, April was a record month, May was even stronger and
June 2001 provided our best results to date. With our revenue model,
characterised by annuity revenue exceeding 50%, we are well hedged against
economic downturn. At the same time, our exposure to the more discretionary
elements of technology spend presents us with a good opportunity to increase
the revenue base when the economy improves.
The increased brand awareness of the AST Group has resulted in more
opportunities and exciting business prospects for the twelve months ahead.
Taking into account the signed orders for the coming year and the prospects
currently under negotiation, we are confident that we will deliver another
year of growth exceeding that of the local IT market.
The Australian expansion is high on our list of priorities. It is AST's
objective to complete the major elements in the realisation of this strategy
in the coming year and to then turn our attention to Europe.
Capital
The capital expenditure for the Group during the period was R80 million,
allocated to computer equipment required for business continuity, and land
and buildings. Commitments entered into over the same period amounts to
R11,5 million.
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 new year. The opportunities abound! We have
succeeded in attracting various top individuals, locally and overseas, to
our company. These people bring to AST not only their abilities, but also
their extensive experience and networks. We are very proud of our employees
and, by means of training and development programmes, we invest in the
intellectual capital that they represent. 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 fine company.
For and on behalf of the Board
Gerrie J de Klerk
Executive Chairman
14 August 2001
Income statement for the twelve months ended 30 June 2001
Audited Audited
30 June 30 June
2001 2000
R'000 R'000
Revenue 1 513 542 1 027 103
Operating profit 183 193 117 885
Net interest received 1 923 10 967
Share of results of associates 69 -
Profit before tax and
amortisation 185 185 128 852
Amortisation of goodwill (126 547) -
Profit before tax 58 638 128 852
Tax (41 342) (25 429)
Profit after tax 17 296 103 423
Minority interest (814) -
Net profit for the year 16 482 103 423
Depreciation 39 009 23 827
Net interest received 1 923 10 967
Interest received 16 431 12 337
Finance costs (14 508) (1 370)
Headline earnings per
ordinary share (cents) (HEPS) 26,21 19,10
Fully diluted headline earnings
per ordinary share (cents) 24,87 18,72
Earnings per ordinary share (cents) 3,00 19,10
Fully diluted earnings
per share (cents) 2,84 18,72
Weighted average number
of shares 550 271 541 517
Fully diluted number of shares 580 004 552 500
Number of shares in issue 554 123 546 321
Reconciliation of
headline earnings
Net profit for the year 16 482 103 423
Amortisation of goodwill 126 547 -
Loss on sale of business 1 197 -
Headline earnings 144 226 103 423
Cash flow statement for the twelve months ended 30 June 2001
Audited Audited
30 June 30 June
2001 2000
R'000 R'000
Operating activities
Cash generated from operations 172 278 202 806
Interest received 16 431 12 337
Finance costs (14 508) (1 370)
Normal tax paid (11 975) (8 287)
Cash from operating activities 162 226 205 486
Investment activities
Acquisition of subsidiaries
and businesses (185 721) (26 677)
Increase in unlisted investment (4 014) (10 409)
Additions to property,
plant and equipment (79 622) (61 350)
Proceeds from sale of property,
plant and equipment - 302
Additions to rental assets (27 770) -
Proceeds from the sale of
rental assets 16 435 -
Cash used in investment
Activities (280 692) (98 134)
Financing activities
Proceeds from the issue
of ordinary shares - -
Purchase of treasury shares (6 570) -
Proceeds from long-term
borrowings 82 268 15 651
Payment of capital element of
finance lease liabilities (225) (220)
Cash from financing activities 75 473 15 431
Net (decrease)/increase in cash
and cash equivalents (42 993) 122 783
Cash and cash equivalents at
the beginning of the year 203 951 81 168
Cash and cash equivalents
at the end of the year 160 958 203 951
Statement of changes in equity
Balance sheet
as at 30 June 2001
Audited Audited
30 June 30 June
2001 2000
R'000 R'000
Assets
Non-current assets 562 071 269 324
Property, plant and equipment 134 239 91 507
Rental assets 11 375 4 700
Goodwill 261 192 1 179
Unlisted investments 33 316 41 533
Deferred tax asset 121 949 130 405
Current assets 489 485 405 987
Inventories 18 950 4 095
Accounts receivable 309 577 197 941
Cash and cash equivalents 160 958 203 951
Total assets 1 051 556 675 311
Equity and liabilities
Capital and reserves 371 299 348 606
Minority interest 55 814 -
Non-current liabilities 108 458 34 684
Interest-bearing liabilities 62 290 15 763
Amounts due to vendors 46 168 18 921
Current liabilities 515 985 292 021
Accounts payable 417 076 268 621
Trade creditors 348 881 249 421
Provisions 68 195 19 200
Amounts due to vendors 60 999 17 813
South African Revenue Service 37 910 5 587
Total equity and liabilities 1 051 556 675 311
Net asset value per ordinary
share (cents) 67,01 63,81
Fully diluted net asset value
per ordinary
share (cents) 64,02 63,10
Statement of changes in equity
for the twelve months ended 30 June 2001
Audited Audited
30 June 30 June
2001 2000
R'000 R'000
Share capital 55 55
Balance at the beginning
of the year 55 54
New shares issued during the year - 1
Share premium 228 359 220 920
Balance at the beginning
of the year 220 920 294 033
Premium on new shares issued
during the year 18 885 8 071
Share issue expenses written off (830) (1 021)
Amounts due to vendors (4 046) 55 216
Purchase of treasury shares (6 570) -
Goodwill arising on the acquisition
of subsidiaries and businesses - (135 379)
Distributable reserves
Retained earnings 143 026 126 544
Balance at the beginning
of the year 126 544 23 121
- As previously reported 126 544 28 136
- Change in accounting
policy regarding
deferred tax - (5 015)
Net profit for the year 16 482 103 423
Foreign entity translation
Reserve 2 899 733
Balance at the beginning
of the year 733 (7)
Currency translation differences
for the year 2 166 740
Non-distributable reserves (3 040) 354
Balance at the beginning
of the year 354 (94)
Currency translation differences
for the year (3 394) 448
Balance at the end of the year 371 299 348 606
www.ast.co.zawww.ast.co.za
AST Group Limited
Financial policy statements
* An unqualified audit report has been issued on the financial position of
the Group at 30 June 2001 and the results of its operations and cash flows
for the year
then ended.
* The financial statements are prepared in accordance with and comply with
the Statements of Generally Accepted Accounting Practice in South Africa.
* 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.
Directors: Gerrie J de Klerk (Executive Chairman), Jan J van Zyl (Chief
Executive Officer), Thinus Mulder (Chief Financial Officer), Marthinus
Erasmus, Joop Groeneveld, Phillip Vermeulen, John Ramatsui, Pieter Bouwer,
John Miller, Malcolm Macdonald*, Jac van der Walt*, Con Fauconnier*, Sipho
Ndlovu*, Constance Nkosi* *Non-executives
Registered office: Lords Office Estates, 276 West Street, Centurion, 0157,
South Africa, Tel: (012) 674-7600, info@ast.co.za
Transfer secretaries: Ultra Registrars (Pty) Limited (Registration number
2000/007239/07) Diagonal Street, Johannesburg, 2001 (PO Box 4844,
Johannesburg, 2000)
