| Tue 3 Sep 2002, 0:00 | | Cs Holdings - Prelimenary Financial Results For Th |
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CS Holdings - Prelimenary Financial Results For The Year Ended 30 June 2002
CS HOLDINGS
(Incorporated in the Republic of South Africa)
(Registration number 1996/015131/06)
Share code: CSH ISIN: ZAE000022034
Prelimenary financial results for the year ended 30 June 2002
Revenue growth 99%
Headline earnings growth 72%
Headline earnings per share growth 32%
Cash flow per share growth 58%
GROUP INCOME STATEMENT
Reviewed Audited
12 months 12 months Change
ended ended 2001
30 June 30 June to
2002 2001 2002
R`000 R`000 %
Revenue 403 161 202 848 98,8
Cost of sales 263 648 132 084
Gross profit 139 513 70 764
Operating costs 84 823 38 487
Operating profit before depreciation 54 690 32 277
Depreciation and amortisation 10 533 6 173
Profit before exceptional items 44 157 26 104 69,2
Exceptional items 2 393 1 873
Profit before interest 41 764 24 231 72,4
Net interest (paid)/received (1 621) 291
Share of results of associate 68 -
Profit before loss on discontinued operation
and goodwill 40 211 24 522 64,0
Goodwill amortisation 13 724 7 073
Loss on discontinued operation 6 956 153
Profit before tax 19 531 17 296
Income tax (3 122) 501
Net profit for year 22 653 16 795
Minority interest - 12
Attributable profit for year 22 653 16 807 34,8
Reconciliation of headline earnings
Attributable profit for year 22 653 16 807
Goodwill amortisation 13 724 7 073
Loss on discontinued operation 4 869 153
Headline earnings 41 246 24 033 71,6
Weighted average number of shares in issue
(thousand) 189 753 146 078
Fully diluted number of shares (thousand) 207 902 151 388
Earnings per share (cents)
Basic 11,94 11,51 3,8
Fully diluted 10,90 11,10 (1,9)
Headline earnings per share (cents)
Basic 21,74 16,45 32,1
Fully diluted 19,84 15,88 25,0
ABBREVIATED GROUP CASH FLOW STATEMENT
Reviewed Audited
12 months 12 months
30 June 30 June
2002 2001
R`000 R`000
Cash inflow from operating activities 50 436 24 493 105,9
Cash outflow from investing activities (53 198) (37 207)
Cash inflow from financing activities 538 14 808
Net (decrease)/increase in cash and cash
equivalents (2 223) 2 094
Cash and cash equivalents at the beginning of
the year 13 460 11 366
Cash and cash equivalents at the end of
the year 11 237 13 460
Cash generated by operations as percentage of
EBITDA (%) 123% 75%
Cash flow from operating activities per share
- Basic (cents) 26,58 16,77 58,5
- Fully diluted (cents) 24,26 16,18 49,9
GROUP BALANCE SHEET
Reviewed Unaudited Audited
30 June 31 December 30 June
2002 2001 2001
R`000 R`000 R`000
ASSETS
Non-current assets 132 349 122 105 46 952
Fixed assets 22 918 26 276 15 516
Deferred tax asset 19 860 10 758 12 098
Intangible assets 84 187 80 980 14 439
Investment in associate 3 786 - -
Loans 192 2 680 3 479
Loan to share incentive trust 1 406 1 411 1 420
Current assets 170 744 173 089 93 170
Trade receivables 92 932 117 514 54 902
Other receivables and pre-payments 5 776 3 188 1 916
Inventory 26 485 26 043 16 261
Work in progress 14 342 9 648 6 631
Cash and cash equivalents 31 209 16 696 13 460
TOTAL ASSETS 303 093 295 194 140 122
EQUITY AND LIABILITIES
Share capital and premium 81 943 68 245 28 853
Shares to be issued 19 730 37 898 7 790
Accumulated profits 64 624 47 793 41 971
Ordinary shareholders` interest 166 297 153 936 78 614
Non-current liabilities 14 984 16 237 5 390
Interest bearing borrowings 11 030 11 302 2 838
Amounts due to vendors 3 954 4 853 2 533
Minority interest - 82 19
Current liabilities 121 812 125 021 56 118
Trade and other liabilities 88 190 95 256 43 982
South African Revenue Services 2 290 4 427 7 182
Short-term portion of long-term liabilities 1 997 1 380 892
Short-term portion of amounts due to vendors 9 363 7 018 4 062
Bank overdraft 19 972 16 940 -
TOTAL EQUITY AND LIABILITIES 303 093 295 194 140 122
Number of shares issued (thousand) 208 245 193 968 152 707
Net tangible asset value per share (cents) 39,43 37,61 42,02
Net asset value per share (cents) 79,86 79,36 51,48
STATEMENT OF CHANGES IN EQUITY
Reviewed Unaudited Audited
12 months 6 months ended 12 months
30 June 31 December 30 June
2002 2001 2001
R`000 R`000 R`000
Share capital 2 082 1 940 1 527
Balance at the beginning of
the year 1 527 1 527 1 397
New shares issued during the year 555 413 130
Share premium 79 861 66 305 27 326
Balance at the beginning of the year 27 326 27 326 8 913
Premium of new shares issued
during the year 52 740 39 050 14 598
Goodwill previously
written off - reversed - - 4 000
Share issue expenses written-off (205) (71) (185)
Shares to be issued for acquisitions 19 730 37 898 7 790
Balance at the beginning of the year 7 790 7 790 16 028
New shares to be issued 69 570 69 571 13 343
New shares issued during the year (53 295) (39 463) (14 728)
Treasury shares available to vendors (3 292) - -
Reversal of shares to be issued - - (4 000)
Transfers (1 043) - (2 853)
Distributable reserves 64 624 47 793 41 971
Balance at the beginning of the year 41 971 41 971 25 164
- As previously reported - - 25 464
- Adjusted for AC 116 - - 300
Net profit for the year 22 653 5 822 16 807
TOTAL EQUITY 166 297 153 936 78 614
COMMENTARY
Introduction
The directors of CS Holdings are pleased to present the group`s annual financial
results for the year ended 30 June 2002. Despite the difficulties and challenges
faced by the global IT sector, CS Holdings has performed well overall. This can
be ascribed to clear long-term strategy and tight fiscal controls.
Strategic review
CS Holdings made several synergistic investments during the latter half of 2001
and into 2002 that assisted the Group in its vision to become a strategic
business and IT solutions partner of choice for its target markets. The
acquisitions of Getronics SA on 1 October 2001, and Argil Intellect on 1
November 2001, have created strong strategic alliances with Getronics NV and
Ernst & Young. Through the equity participation of Worldwide African Investment
Holdings (WAIH), CS Holdings has reinforced its positioning as a truly South
African company with strong and credible international affiliations.
Additionally, as a prominent black economic shareholder, WAIH has provided the
group with the necessary empowerment profile and support to penetrate the public
sector and parastatal markets more successfully. CS Holdings also acquired
PricewaterhouseCoopers Consulting`s J.D. Edwards Practice on 1 February 2002, as
well as IDION Solutions, the software integration and development subsidiary of
the IDION Technology Holdings Limited Group, effective 1 September 2002.
The Group is pleased to report that all strategic acquisitions have been
successfully integrated into CS Holdings` operations.
Operational overview
Clients of CS Holdings have access to integrated IT and business solutions
through our Processes, Technology, and People divisions. The company has shown
significant growth in the Processes and Technology divisions, but has
experienced slower growth in the ICT training division. Consequently, that
division`s contribution to the Group`s turnover is significantly smaller in
percentage terms. Although smaller, the People division will always play a
strategic role in the integrated IT and business solution. In order to adapt to
changes and demands in the market, CS Holdings may consolidate its national
footprint as more clients are migrating to blended learning solutions that
require less of a national presence.
Despite the challenges to the successful integration of the acquisitions made
during the year, CS Holdings has managed to increase its organic revenue growth
by more than 39%. This demanded a significant operational investment,
particularly in the Processes division, where a strategic decision was made to
migrate from the less lucrative PC&A sector to higher margin MES and J.D.
Edwards consulting. The move was particularly successful, and despite the higher
operating cost as a result of initial capacity building, management has
succeeded not only in replacing revenue lost due to the discontinued PC&A
division, but to grow on it. It is expected that the benefits of this investment
will be realised in future years and should result in the achievement of higher
margins in this sector.
Developments for the year ahead
The next phase of CS Holdings` development will focus on organic rather than
acquisitive growth. Elevation, transitioning, convergence and transformation
will be the Group`s primary focus areas in the year ahead.
Vertical Sector Development
CS Holdings has developed significant skills and experience in several
vertical market sectors, i.e. mining and metals, manufacturing, public and
parastatal, financial and insurance, telecommunications and retail. Our future
focus will be strongly directed towards increasing our market share in each of
these industries by capitalising on the solid base we have already established.
Transformation and Employment Equity
The transformation of CS Holdings into a truly South African company, wholly
committed to bridging the digital divide, is well underway. During the past year
WAIH has taken up part of its equity stake, and board memberships, as
anticipated. This was only the first small step towards the full transformation
of our company. Employment Equity targets are being comfortably met, and the
group`s PDI complement (Black, Asian and Coloured) has reached more than 30% at
30 June 2002. Adding white females to this number brings total PDI levels to
54%. Currently, 37% of CS Holdings` directors and top management are PDIs. By
2005 the target is to have more than 50% PDI representation (other than white
females) and approximately 25% white females in addition to this. This will
bring total PDI levels to between 75% and 80% and place CS Holdings well above
average for the IT sector.
African sub-continental Drive
Africa has been identified as one of CS Holdings` key markets for integrated
solutions. In this financial year the Group has won and successfully implemented
several projects on the continent, including a skills and maintenance contract
with the Chevron Oil Group in Angola, a multi-disciplinary project for the Addis
Ababa Water and Sewerage Authority in Ethiopia, a factory automation contract
for the Marromeu Sugar Mill in Northern Mozambique and an information delivery
system at the Debswana Diamond Mine in Botswana. Other contracts in Uganda,
Namibia and Nigeria are currently in the CS Holdings pipeline of contracts being
pursued.
FINANCIAL PERFORMANCE
CS Holdings highlights:
Revenue over R400 million up 99% from previous year
Operating profit R44,2 million up 69% from previous year
Headline earnings R41,2 million up 72% from previous year
Basic headline earnings per share 21,74 cents up 32% from previous year
Cash generated as % of EBITDA 123%
The group has a healthy balance sheet and strong cash flow. This is carefully
managed as a basis to grow the business organically.
Margins
Operating margins in the acquired businesses were lower than those of CS
Holdings` existing operations. Costs were reduced through successful integration
into the broader CS Holdings group. This is reflected in an 11,5% operating
margin before exceptional items during the second half of the 2002 financial
year. That compares favourably with the figure of 10% during the first half of
the same year. Management believes these levels are realistically sustainable.
Acquisitions
The two strategic acquisitions for the year, Getronics and Argil, were
successfully integrated into the Technology and Processes divisions,
respectively. Their successful integration can mainly be ascribed to the time
and effort put in by management to secure customers, ensure satisfactory service
delivery and assimilate systems and cultures effectively. The integration
process of Getronics included a complete restructuring exercise. The successful
integration had the following two direct once- off benefits for the Group, which
is evident on the financial statement of the Group:
Benefit Effect on financial statements Note
Tax benefit Creation of deferred tax asset and See income tax and
deferred tax
corresponding credit to income tax line asset note
Improved cash Decrease in debtors and improved See cash flow note
flow cash generation
Loss on discontinued operation
The loss on discontinued operation of R6,956 million arose from the
discontinuation of the Process Control and Automation (PC&A) business unit. The
loss was higher than expected and could not be foreseen at the interim period.
As reported at the interim period, the closure came as a result of the strategic
decision to move away from PC&A and into MES (Manufacturing Execution Systems),
which involves more sophisticated, service-orientated solutions. The closure has
been finalised and no further losses are anticipated.
Exceptional items
CS Education Solutions restructured its business in line with the group`s
strategic direction and four branches were closed on 1 March 2002. This,
together with a once-off marketing expense brought about expenditure amounting
to R2,393 million.
Income tax and deferred tax asset
After the restructuring of the Getronics business and following the interim
period, it became evident that the assessed loss previously made by Getronics
would in all likelihood be used during the next two years. The deferred tax
asset was therefore created on the balance sheet in full, with the corresponding
credit to the tax line in the income statement.
Cash flow
Cash flow improved significantly during the last quarter of the year. Cash
generated from operations as a percentage of EBITDA improved to 123%, up from
78% reported at interim and 75% reported in the previous financial year. This is
a result of the concerted effort to effectively manage the debtors` book and
improve working capital ratios in businesses acquired during the year. This
higher-than-expected percentage is not sustainable and will return to normal
levels going forward, although continued focus will be placed on cash generation
from operations and working capital management.
Investment activities
The group`s cash resources and cash generated by operations were primarily used
to fund investment activities. Investment in acquisitions amounted to
approximately R104 million during the year. Payments to vendors for acquisitions
amounted to R86 million, of which R33 million was in cash. Overdraft balances
included in the acquisitions amounted to R12 million. Capital spent to maintain
businesses amounted to R8 million.
Dividends
Current policy is not to pay dividends. All retained earnings will be used to
fund further growth and development. The directors will review this policy
periodically.
Accounting policies
The financial statements are prepared on a historical cost basis in accordance
with South African Statements of Generally Accepted Accounting Practice.
The accounting policies of the group are consistent in all material respects
with those applied in the previous financial year, except for the adoption of AC
116, in terms of which the group now provides fully for leave pay liability.
Independent review
Financial information has been reviewed by PricewaterhouseCoopers, whose report
is available to members for inspection at CS Holdings` registered office. It is
anticipated that an unqualified audit report will be released once CS Holdings`
detailed annual financial statements have been finalised.
Prospects
CS Holdings is budgeting for further strong profit growth for the next financial
year.
On behalf of the Board
Annette van der Laan Johan Goosen
Chief executive officer Group financial director
Registered office Transfer Secretaries
CS Holdings Office Park Computershare Investor Services
Limited
241, Third Road 2nd Floor, Edura
Halfway Gardens 41 Fox Street
Midrand Johannesburg
Board of Directors
A van der Laan T R T Bohlmann* A D Botha*
A Davenport* J G Goosen J J Kunz
S H MYller* N Qangule (Alt)* D L Vink
T H Zuma*
*Non-executive
Company Secretary
J G Goosen
This financial report can also be viewed at www.cs.co.za
Date: 03/09/2002 07:35:59 AM Produced by the JSE SENS Department
