| Tue 13 Aug 2002, 0:00 | | AST Group Limited - Audited results for the year e |
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AST Group Limited - Audited results for the year ended 30 June 2002
AST Group Limited
REGISTRATION NUMBER 1998/021790/06
Share code: AAA ISIN code: ZAE0000027397
AST Group Limited
Audited results for the year ended 30 June 2002
www.ast.co.za
Financial summary
Revenue UP 47%
EBITDA DOWN -6%
Headline earnings
per share DOWN -20%
Operating cash flow
per share UP 25%
Annuity income = 50%
Dollar-hedged income = 15%
Chairman's report
Introduction
AST has once again achieved excellent growth in revenue of 47%, and in so
doing has significantly increased its market share. We have now established
the full service offering within our ICT services businesses that we
envisaged four years ago at the time of AST's listing. The R1 024 million in
total revenue generated in the financial year ended 30 June 2000, has
increased significantly during the two subsequent financial years. In 2002
annuity revenue alone was R1 110 million. This growth has been achieved
against the backdrop of significantly more difficult trading conditions and
in a period when, according to independent sources of market information,
there was less than 10% growth in ICT spend in South Africa. These difficult
trading conditions have been borne out in significant margin pressure to
which AST has not been immune.
AST has built a world-class competence in leading technologies and
methodologies, an in-depth knowledge of our clients' businesses that
reinforces long-term partnerships and a diversified client base that includes
the leading companies in the industries of AST's focus. AST has established a
reputation as a top-rated service provider in each of our horizontal market
offerings. BMI- TechKnowledge (August 2001) rates AST in the top three
service providers for five out of the six of our ICT business areas. Our
capability in systems integration and in networking has further improved
during 2002.
Whilst we remain open to further market consolidation opportunities there is
no need for further "capacity-building" acquisitions. The bulk of the vendor
payments in respect of our capacity building acquisitions have been made in
cash. Subject to performance, the amounts that remain due, mostly are
scheduled for the forthcoming year. Thereafter, AST's gearing and balance
sheet should improve significantly, benefiting from healthy operational cash
flows. As an illustration, AST achieved a cash conversion ratio of 121%. This
is partly due to having reduced debtor days from 56 days to 48 days for the
period under review.
AST's core businesses are performing well. Its Infrastructure and Solutions
divisions increased both revenue and profits. Total workforce has increased
by 30% to 3 750 people, increasing the intellectual capital within the group
and providing AST with the capacity to strive for additional organic growth
in the next financial year.
Financial performance
Revenue increased by 47%, from R1 514 million to R2 220 million for the 12
months ended June 2002. Almost two thirds of the revenue growth was achieved
organically. Operating profit before interest, exceptional items and goodwill
decreased by 16%, from R184 million to R154 million - the continuing
operating margin, excluding Sales, General & Administration (SG&A) costs,
decreased from 19.6% to 13.3%. Headline earnings per share decreased by 20%,
from 25.06c per share to 20.08c per share.
A number of large contracts have significantly added to our turnover.
However, the business has now diversified its earnings base as it is not
longer as significantly exposed to single contracts as was previously the
case. AST's customer base (excluding AST Networks with, more than 3 000
customers) has grown to more than 300. However, despite excellent turnover
growth and strong performances in Managed Services, Networking and IT
Solutions there were a number of issues that resulted in headline earnings
being below that of the previous year.
Although still profitable, AST's consulting business in Australia performed
significantly below expectations for the year and overall, Australia had a
dilutionary impact on the results. The Australian head office was closed and
we incurred an additional R7 million non-recurring closure cost. The weak
Australian performance also resulted in AST cancelling the acquisition of
RedRock in April 2001.
AST's investments in eVentures were slow in gaining customer adoption in line
with the local industry trend. As a result of disproportionately increasing
costs, we decided to sell, integrate or close the eVenture businesses. Whilst
the increased costs affected the group margins, the action taken also
resulted in a once-off exceptional loss of R23 million.
AST's Namibian subsidiary realised an after tax loss of R12.2 million during
the last quarter. These losses came as a result of irrecoverable debts, stock
losses and accounting errors. Action has been taken and the Namibian
executive management and board of directors have been changed. The accounting
system will immediately be integrated with AST's financial management system
to prevent the recurrence of these issues and to return the business to
profitability. Service delivery to our customers in the territory will not be
affected.
Basic earnings per share was a loss of 9.79 cents compared with a profit of
2.89 cents in the previous year. Basic earnings per share was affected by a
significant goodwill write off, which has been made in line with the group's
policy of writing off goodwill over the shorter of the period of the useful
life or the period of the profit warranties associated with the acquisition.
The goodwill write-off has peaked and, in the absence of further
acquisitions, will reduce to below R50 million within 36 months.
Notwithstanding these challenges, AST strengthened cash flows for the period
under review, generating R252 million cash from operations. After acquisition
payments of more than R131 million during the year, cash on hand was R112
million at 30 June 2002.
Strategic overview
AST's value proposition is built on several pillars:
- The intellectual capital represented by our people;
- The mutual trust between AST and its clients, and in-depth business
knowledge that comes from - and leads to - long-term partnerships;
- The comprehensive, end-to-end range of offerings;
- Focused execution, enabled by best practices.
AST is vendor independent. The group exploits best-of-breed technologies on
behalf of our clients, leveraging our intimate knowledge of their businesses
to make them more competitive and effective. This remains our primary role
and our priority. AST's consulting business has diversified and has
established itself as a leader in each of its service offerings. The IT
Solutions division, with more than 1 600 IT professionals, is now one of the
top two systems integration players in South Africa and a highly valued
partner of SAP, IBM, Oracle, Honeywell and Microsoft (Gold certified).
AST's hosting, networking, distributed technology services, secure
transaction services and technology rental services have been consolidated
into the newly formed ICT Infrastructure Division, which will better unlock
synergies. This division is, according to independent market research, the
dominant managed services provider in South Africa. Their competitive
position is further complemented by a stable income base, as 64% of its
revenues are annuity based. AST's ICT Infrastructure Division is an
accredited partner of IBM, HP, Cisco and Nortel.
The current businesses in the United Kingdom have much potential and we
intend to gradually increase our activities in that region. The international
focus remains Australia.
Social responsibility and BEE
The AST Group's BEE model has continued to gain acceptance in the public
sector, as is evidenced by our ongoing success in winning government and
related contracts. AST has an excellent record of skills transfer and
development, social responsibility projects, affirmative procurement and
focused efforts towards attaining employee equity within the group. AST
helped to establish Thuso, a highly respected ICT company, the majority of
which is Black-owned and includes grass roots shareholding. Thuso has more
than 100 employees and tangible delivery capacity, and the initiative is
receiving focused attention to expand the capacity even further. Our
initiative of attracting significant Black Economic Empowerment in the AST
Group is of utmost importance to maintain and continue to increase AST's
market share.
Prospects
Taking into account the annuity profile of our current revenue stream,
commitments for orders for the forthcoming year and the prospects currently
under negotiation, we are confident that during the 2003 financial year our
rate of growth will again exceed that of the local IT market. Between the
Government and the Financial Services sector, AST has recently secured
contracts that will generate R350 million in revenue over the next 18 months.
However, the tough market conditions are most likely to persist. Despite the
competitive market conditions, AST's "run and leverage" services will grow by
at least 20% in the coming year. Management expects margins to continue to be
under pressure during 2003 but is targeting a margin in excess of 9%, which
is 3% below what the group achieved in 2001.
The acquisitive capacity building phase is behind us. More than 80% of the
vendor earnouts have been settled already, predominantly with cash in order
to minimise the dilution of shareholders interest in the group. In the four
years since listing, shareholder dilution has been less than 6%.
The effect going forward is illustrated by the fact that AST's remaining
investment payments will decrease, while the cash generated from operations
will continue to grow. We expect these benefits to come into effect in
October 2002. The free cash flow, after taking into consideration provision
for organic growth as AST keeps on expanding, will have a positive impact in
building AST's balance sheet. We maintain that AST has never been better
positioned to take advantage of the opportunities ahead.
Capital expenditure
The capital expenditure for the Group during the period under review was R72
million, allocated to computer equipment, land and buildings. No capital
expenditure commitments were entered into over the same period.
Dividend policy
To date, the AST Group's policy has been not to pay dividends. A working
committee of the board reviewed the current position and recommended that,
subject to certain business parameters - current ratio & liquidity - dividend
payments should be introduced in future. However, there will be no dividend
payments for the 2002 financial year.
Conclusion
We are confident for the year ahead - AST is now a strong and diversified ICT
services provider, with critical mass and stable core businesses that are at
the leading edge in their markets. The Group has a focus on a number of
selected client industries and we have formed, and continue to form, long-
term partnerships with an increasing number of top tier companies in those
industries.
We are very proud of and grateful to our employees. With ongoing training and
development programmes, we continue to invest in the intellectual capital
that they represent. AST has a better staff-retention record than most of the
industry. Due to depressed stock markets, the share option scheme currently
has little value as an incentive. AST has already reverted to paying cash
bonuses to worthy performers and as a result AST is currently reviewing the
existing share option scheme. Shareholder approval and full disclosure on
SENS will precede any changes to the scheme. Re-pricing of the existing share
option scheme will not be considered.
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 their ongoing dedication and commitment. We are
also grateful to our valued clients, business partners and investors, who are
contributing to the success of this fine company through their continuing
support and participation.
For and on behalf of the Board
Gerrie J de Klerk
Chairman
13 August 2002
Financial policy statements
* 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
accounting policy due to the requirements of AC 123 and AC 135 where owner-
occupied buildings are now depreciated over 50 years.
* The results have been audited by PricewaterhouseCoopers Inc. and the
unqualified audit opinion is available for inspection at the company's
registered office.
Board of directors: Gerrie J de Klerk (Chairman ), Jan J van Zyl (CEO),
Thinus Mulder (CFO), Marthinus Erasmus, Joop Groeneveld, Pieter Bouwer, John
Miller, Con Fauconnier*, Malcolm Macdonald*, Jac van der Walt*, Sipho
Ndlovu*, Jannie Mouton* (* Non-executive director)
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)
This and additional information is available on our website: www.ast.co.za
Income statement
for the twelve months ended 30 June 2002
Audited Audited
30 June 2002 30 June 2001
R'000 R'000
Revenue 2 219 650 1 513 542
Earnings before interest, tax,
depreciation and amortisation 209 884 223 399
(EBITDA)
Depreciation (56 071) (39 588)
Earnings before exceptional items 153 813 183 811
Loss on sale and closure of business (30 184) (1 197)
Operating profit 123 629 182 614
Continued 128 357 182 614
Discontinued (4 728) -
Net (finance cost)/interest received (3 432) 1 923
Share of results of associates (2 619) 69
Profit before tax and amortisation 117 578 184 606
Tax (29 605) (41 342)
Profit after tax 87 973 143 264
Amortisation of goodwill (138 179) (126 547)
(Loss)/profit after tax and (50 206) 16 717
amortisation
Minority interest (4 674) (814)
Net (loss)/profit for the year (54 880) 15 903
Net (finance cost)/interest received (3 432) 1 923
Interest received 10 878 12 008
Finance costs (14 310) (10 085)
Headline earnings per ordinary share 20,08 25,06
(cent)
Fully diluted headline earnings
per ordinary share (cent) 18,59 23,77
(Loss)/earnings per ordinary share (9,79) 2,89
(cent)
Fully diluted (loss)/earnings per
ordinary share (cent) (9,06) 2,74
Weighted average number of shares 560 556 550 271
Fully diluted number of shares 605 552 580 004
Number of shares in issue 575 046 554 123
Reconciliation of headline earnings
Net (loss)/profit for the year (54 880) 15 903
Amortisation of goodwill 129 166 120 777
Provision for restructuring costs 1 000 -
Impairment of investments 7 087 -
Loss on sale and closure of business 30 184 1 197
Headline earnings 112 557 137 877
Cash flow statement
for the twelve months ended 30 June 2002
Audited Audited
30 June 2002 30 June 2001
R'000 R'000
Operating activities
Cash generated from operations 252 954 172 278
Net (finance cost)/interest (3 432) 1 923
received
Normal tax paid (43 433) (11 975)
Cash from operating activities 206 089 162 226
Investment activities
Acquisition of subsidiaries and (131 661) (185 721)
businesses
Other investment activities (111 412) (94 971)
Cash used in investment activities (243 073) (280 692)
Financing activities
Proceeds from the issue of - -
ordinary shares
Purchase of treasury shares - (6 570)
(Payment of)/proceeds from
long-term borrowings (12 243) 82 043
Cash (used in)/from financing (12 243) 75 473
activities
Net decrease in cash and
cash equivalents (49 227) (42 993)
Cash and cash equivalents at the
beginning of the year 160 958 203 951
Cash and cash equivalents at the
end of the year 111 731 160 958
Operating cash flow
per ordinary share (cent) 36,77 29,48
Cash conversion ratio (%) 120,52 77,12
Balance sheet
as at 30 June 2002
Audited Audited
30 June 2002 30 June
2001
R'000 R'000
Assets
Non-current assets 602 219 554 060
Property, plant and equipment 164 683 133 102
Goodwill 281 498 261 192
Unlisted investments 24 849 33 316
Deferred tax asset 131 189 126 450
Current assets 551 253 500 860
Rental assets 34 915 11 375
Inventories 30 452 18 950
Trade debtors and other receivables 374 155 309 577
Cash and cash equivalents 111 731 160 958
Total assets 1 153 472 1 054 920
Equity and liabilities
Capital and reserves 336 264 370 162
Minority interest 60 960 55 814
Non-current liabilities 125 230 112 959
Interest bearing liabilities 86 656 62 290
Deferred tax liability 12 907 4 501
Amounts due to vendors 25 667 46 168
Current liabilities 631 018 515 985
Trade creditors and other payables 562 666 417 076
Amounts due to vendors 46 563 60 999
Tax liability 21 789 37 910
Total equity and liabilities 1 153 472 1 054 920
Net asset value per ordinary share 58,48 66,80
(cents)
Fully diluted net asset value per
ordinary share (cents) 55,53 63,82
Statement of changes in equity
for the twelve months ended 30 June 2002
Audited Audited
30 June 2002 30 June 2001
R'000 R'000
Share capital 58 55
Balance at the beginning of the year 55 55
New shares issued during the year 3 -
Share Premium 253 519 228 359
Balance at the beginning of the year 228 359 220 920
Premium on new shares issued
during the year 52 880 18 885
Share issue expenses written off (246) (830)
Changes in amounts due to vendors
during the year (27 182) (4 046)
Purchase of treasury shares (292) (6 570)
Distributable reserves 78 278 144 788
Balance at the beginning of the year 144 788 126 719
- as shown previously 145 925 127 277
- adjusted for AC 123 (1 137) (558)
Net (loss)/profit for the year (54 880) 15 903
Currency translation differences for (11 630) 2 166
the year
Non-distributable reserves 4 409 (3 040)
Balance at the beginning of the year (3 040) 354
Losses on cash flow hedges for the (5 951) -
year
Currency translation differences for 13 400 (3 394)
the year
Balance at the end of the year 336 264 370 162
Date: 13/08/2002 09:00:00 AM Produced by the JSE SENS Department
