| Thu 24 Oct 2002, 13:31 | | Ast Group Limited - Quarterly Update 24 October |
|
AST GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1998/021790/06)
(Share code: AAA)
(ISIN: ZAE000027397)
QUARTERLY UPDATE 24 OCTOBER 2002
In line with AST`s policy of providing quarterly updates, we are pleased to
provide our update for the first quarter of fiscal 2003.
- AST is maintaining its leading position in Information, Communication and
Telecommunications ("ICT") services and solutions and continues to grow market
share.
- Performance in the 1st quarter has been solid, albeit slower, with continued
cash generation.
- Group margins remain under pressure due primarily to cancelled tenders,
delayed customer commissioning and the revenue mix in this quarter.
- AST has taken significant steps to enhance its competitiveness by reshaping
the business and reducing headcount at the sales, general and administration
("SG&A") level.
- AST remains confident in its business model, which continues to deliver
results in tough market conditions.
AST maintains lead in ICT services and solutions while still growing market
share
AST`s value proposition continues to be borne out as evidenced by revenue growth
which continues to exceed that of the market. However, in line with global
economic pressures, growth rates are at a substantially lower rate than
historically. AST budgeted conservative growth for the current financial year.
75% of Group revenue is derived from Infrastructure Services and IT Solutions.
Infrastructure Services enjoyed solid performance for the quarter. 70% of its
revenue is derived from long-term contracts and consequently it enjoys some
buoyancy during difficult markets. IT Solutions is on budget for the quarter -
the demand for legacy system support and temporary resources supported the
divisional performance in the quarter whilst the trend towards contractors has
offered protection in the cost structure.
25% of Group revenue is derived from the remaining business units.
The first quarter in Products was slow in line with industry trends. Secure
Transaction Services also performed below expectations as biometric adoption
rates have been sluggish and the campus smart card roll-outs were behind
targets. Bentley West, the strategic management consulting arm of the Group, was
slow even though their outlook for the 6 months remains on budget. Business
Services is profitable and on budget for the first quarter.
In Australia, the products market remains depressed whilst GEM Consulting is now
meeting budget. In the United Kingdom the performance for the quarter was solid.
1st quarter performance solid with continued cash generation
EBIT cash conversion has been maintained at the levels achieved in 2002. Debtor
days are at year-end levels whilst trade creditor days have remained constant
for the past two years as the full envisaged capacity of our services and
solutions has been built.
In our annual results announced in August, we projected that during the second
quarter of the current financial year cumulative cash generated from operating
activities would exceed committed vendor payments and capex. Based on this
projection AST settled all vendor share claims in cash thereby avoiding dilution
at depressed share levels and postponing the cross-over to the third quarter of
the financial year. As a result, the projected fully diluted shares will be
significantly lower than published in the Annual Financial Statements.
Group margin remains under pressure due to revenue mix and market conditions
Group revenue is on target but the revenue mix - under-performance by
traditionally higher margin Products and Consulting - during the first quarter
place the 9% minimum projected Group EBIT margin target at risk for the first
half of the financial year. Other factors negatively affecting margins during
the first quarter include slow adoption rates and commissioning delays.
The pressure on our margins is tempered by our long-term annuity contracts and
continued focus within the Group on efficiencies and costs.
AST is enhancing its competitiveness by reshaping the business
The Group has accelerated its cost and efficiency focus since year-end, and this
is starting to pay off.
Operational efficiencies are being achieved by the consolidation of SG&A
functions in our Infrastructure Services division. 97% of service level
agreements ("SLA`s") are being achieved.
The continuous improvement programme is currently streamlining the Head Office
as well as Corporate Sales and Business Development. This process will be
complete by the interim results and will further increase efficiency in the cost
structure.
Black Economic Empowerment continues to be a high priority, and the Group has
made some progress through the recent transformation at Board and Senior
Management level. We are ahead of our targets submitted to the Department of
Labour for staff transformation at all levels, but AST is acutely aware of the
importance of the programme, which, despite the achievements to date, needs to
be accelerated. As part of the process, the Group remains committed to increased
BEE equity ownership.
AST`s business model continues to deliver results in tough market conditions
Global forecasts for the ICT services and solutions market remain conservative
as the timing of the global economic recovery remains uncertain. Gartner
Dataquest forecasts growth of less than 3% for 2002 with a recovery to 7.1% in
2003.
Within this environment, customer focus is on reducing costs and increasing
efficiencies. Outsourcing is viewed as a method of reducing costs whilst demand
for external skills on internal customer projects continues to increase. These
trends favour AST`s business model.
Furthermore the strong annuity profile of the Group`s order book offers
significant protection in an otherwise slow market.
Conclusion
We have experienced a solid quarter despite the current corporate climate in our
target markets in Financial Services, Mining, Manufacturing and Health. However,
Government is more active with a number of service delivery projects.
The aggressive approach towards protecting shareholder dilution by using
internally generated cash to settle the last tranches of vendor payments will in
time pay dividends.
The key is a lean, efficient business model that focuses on customer operational
needs and delivering on service levels. As part of this, we intend to continue
our focus on transformation of the Group to remain competitive as the South
African ICT market normalises.
ENDS
Date: 24/10/2002 12:30:00 PM Produced by the JSE SENS Department
