| Mon 18 Aug 2003, 9:22 | | Audited Results for the year ended 30 June 2003 |
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AAA
AST Group - Announcement
AST Group
REGISTRATION NUMBER 1998/021790/06
Share code: AAA ISIN code: ZAE0000027397
AST Group Limited
Audited Annual Results
for the year ended 30 June 2003
www.ast.co.za
Financial policy statements
* The financial statements of AST Group Limited and its subsidiaries are
prepared in accordance with and comply with the Statements of Generally Accepted
Accounting Practice of South Africa.
* The financial statements have been prepared on the historical cost basis,
modified by the remeasurement of certain financial instruments to fair value.
* The accounting policies of the Group are consistent in all material respects
with those applied in the previous year except for the adoption of AC 133,
Financial Instruments: Recognition and Measurement.
Income statement
for the year ended 30 June 2003
Audited Audited
30 June 2003 30 June 2002
R"000 R"000
Revenue 2 205 612 2 219 650
Earnings before interest, tax, 129 136 194 772
depreciation and amortisation
and abnormals (EBITDA)
Depreciation (60 565) (56 070)
Impairment of assets and (23 435) (7 087)
investments
Exchange (loss)/gain (13 347) 22 198
Non-recurring expenditure (116 776) (30 184)
Operating (loss)/profit before (84 987) 123 629
amortisation
Amortisation of intangible (2 062) (4 618)
assets
Amortisation of goodwill (145 434) (133 561)
Operating loss (232 483) (14 550)
Net finance cost (60 813) (3 432)
Share of results of associates 323 (2 619)
Loss before tax (292 973) (20 601)
Tax 48 435 (29 605)
Loss from ordinary activities (244 538) (50 206)
Minority interest 17 057 (4 674)
Net loss for the year (227 481) (54 880)
Net finance cost (60 813) (3 432)
Interest received 20 161 10 878
Finance costs (80 974) (14 310)
Headline (loss)/earnings per (10,15) 20,08
ordinary share (cents)
Fully diluted headline (10,15) 18,59
(loss)/earnings per ordinary
share (cents)
Basic loss per ordinary share (37,10) (9,79)
(cents)
Fully diluted basic loss per (37,10) (9,79)
ordinary share (cents)
Weighted average number of 613 233 560 556
shares
Fully diluted number of shares 1 926 573 605 552
Number of shares in issue 673 105 575 046
Reconciliation of headline
earnings
Net loss for the year (227 481) (54 880)
Amortisation of goodwill 145 434 133 561
Minority interest in (4 999) (4 395)
amortisation of goodwill
Provision for restructuring - 1 000
costs
Loss on impairment of assets 23 435 7 087
and investments
Loss on sale and discontinuance 1 372 30 184
of businesses
Headline (loss)/earnings (62 239) 112 557
Balance sheet
as at 30 June 2003
Audited Audited
30 June 2003 30 June 2002
R"000 R"000
Assets
Non-current assets 506 867 602 219
Property, plant and equipment 158 634 164 683
Goodwill 147 802 281 498
Unlisted investments 19 115 24 849
Deferred tax asset 181 316 131 189
Current assets 537 279 573 866
Rental assets - 34 915
Inventories 55 082 30 452
Trade debtors and other 395 065 374 155
receivables
Tax asset 16 417 -
Cash and cash equivalents 70 715 134 344
Total assets 1 044 146 1 176 085
Equity and liabilities
Capital and reserves 124 231 336 264
Minority interest 9 296 60 960
Non-current liabilities 182 298 125 230
Interest-bearing liabilities 159 208 86 656
Deferred tax liability 20 068 12 907
Amounts due to vendors 3 022 25 667
Current liabilities 728 321 653 631
Trade creditors 285 044 315 986
Provisions 67 607 42 012
Income received in advance 44 589 43 059
Other payables 282 414 161 609
Bank overdrafts 34 582 22 613
Amounts due to vendors 14 085 46 563
Tax liability - 21 789
Total equity and liabilities 1 044 146 1 176 085
Net asset value per ordinary 18,46 58,48
share (cents)
Statement of changes in equity
for the year ended 30 June 2003
Audited Audited
30 June 2003 30 June 2002
R"000 R"000
Share capital 67 58
Balance at the beginning of the 58 55
year
New shares issued during the 9 3
year
Share premium 236 209 207 059
Balance at the beginning of the 207 059 154 717
year
Premium on new shares issued 23 969 52 880
during the year
Share issue expenses written (1 553) (246)
off during the year
Utilisation/(purchase) of 6 734 (292)
treasury shares during the year
Vendor claims 30 206 46 460
Balance at the beginning of the 46 460 73 642
year
Changes in amounts due to (16 254) (27 182)
vendors during the year
Distributable reserves (135 136) 78 278
Balance at the beginning of the 83 614 144 788
year
- as shown previously 78 278 145 925
- adjusted for AC 133 5 336 -
- adjusted for AC 123 and AC - (1 137)
135
Net loss for the year (227 481) (54 880)
Currency translation - (11 630)
differences for the year
Transfer to non-distributable 8 731 -
reserves
Non-distributable reserves (7 115) 4 409
Balance at the beginning of the 4 409 (3 040)
year
Realised/(unrealised) profits 5 951 (5 951)
on cash flow hedges
Transfer from distributable (8 731) -
reserves
Currency translation (8 744) 13 400
differences for the year
Balance at the end of the year 124 231 336 264
Cash flow statement
for the year ended 30 June 2003
Audited Audited
30 June 2003 30 June 2002
R"000 R"000
Operating activities
Cash generated from operations 50 849 252 954
Net finance cost (69 019) (3 432)
Normal tax paid (34 131) (43 433)
Cash (used by)/from operating (52 301) 206 089
activities
Investment activities
Vendor payments for (65 316) (131 661)
past acquisitions
Other investment activities 53 469 (111 412)
Cash used in investment (11 847) (243 073)
activities
Financing activities
Repayment of long-term (11 450) (12 243)
borrowings
Cash used in financing (11 450) (12 243)
activities
Net decrease in cash and
cash equivalents (75 598) (49 227)
Cash and cash equivalents
at the beginning of the year 111 731 160 958
Cash and cash equivalents
at the end of the year 36 133 111 731
CEO report
Introduction
AST has made substantial changes and progress since December 2002. The Board
appointed a new management team, which implemented a more conservative and
transparent management style, developed a "One AST" culture and gave the company
a customer centric focus.
In December 2002 the Board appointed our Australian consultancy practice, GEM
Consulting, to assist in the restructuring of AST. After a validation study, a
comprehensive Business Improvement Programme is now being implemented. This
targets a number of areas including recapitalisation of the business through a
rights issue, the sale or closure of non-core activities, increasing efficiency
and substantial cost reductions.
The business has been stabilised and we have addressed a number of market
concerns. The Business Improvement Programme is now in the implementation phase
of the first wave confirming that our targeted annualised cost savings of more
than R200 million are likely to be achieved.
We have retained strong relationships with our customers and have enjoyed their
continued support. They mirror our confidence that AST is fit for business, as
evidenced by the new business awarded since December 2002.
The Group is still facing some challenges in the industry but the Board is happy
with the progress in the short period of time, even though all the results are
not yet visible.
Restructuring review
The Business Improvement Programme mapped the strategy for AST"s restructuring
and rebuilding. The management team has a more detailed understanding of the
business than ever before, both with regards to efficiency and the cost drivers.
This combined with more effective interaction with our customers, focusing on
making them more competitive in their target markets, has resulted in an
improvement in customer satisfaction levels.
The first phase of implementing the Business Improvement Programme focused on
the systematic redesign and implementation of the critical business activities
in approximately half the addressable cost base. This included core business
units from the Infrastructure Services and Solutions divisions and the recently
centralised support functions. Various cost reduction initiatives are already in
the process of implementation, with tangible benefits occurring to both margins
and cash flow. Full realisation of the cost savings will however only be visible
in the financial year to June 2005, as upfront costs associated with
implementing the Business Improvement Programme will be absorbed during the 2004
financial year.
The roll out of the programme is resulting in a simpler and flatter business
structure with centralised support functions, better efficiencies and lower
overhead costs. Service levels to our customers have improved because of our
"One AST" focus and improved integration.
The recent appointment of a customer care executive highlights the priority of
the customer centric approach throughout the Group. Engagement models are being
developed and implemented for all customers. We understand and prioritise their
economic drivers, business and architecture strategy and critical service
sensitive areas. Our understanding of our customers" operating environments
continues to facilitate the delivery of high quality services. As a result of
these initiatives AST has retained all of its major customers and thereby also
maintained its annuity revenue base around the 40% mark.
We adopted a more selective approach to new opportunities and all new prospects
underwent detailed evaluation including bidding costs and capital investments
associated with implementation to ensure that they satisfy our requirements in
terms of risks and returns. AST"s selective approach will ensure profitability
while we build a stronger balance sheet.
The transformation of both culture and demographics in the Group is a high
priority. We have appointed a Transformation Executive who is driving
implementation of the strategy already approved by the Board. This includes
meaningful PDI ownership and representation; cultural transformation and skills
development as well as a focus on affirmative procurement.
Recapitalisation
As part of the Business Improvement Programme, a more effective capital
management strategy is being implemented across the Group. This entails a
complete analysis of the available sources of capital and the effective
allocation and measurement of capital utilisation.
The recapitalisation was initiated by rescheduling the repayment terms on
existing debt to reduce the pressure on cash flows. A further debt facility of
R60 million was raised to improve liquidity in the Group. A fully underwritten
rights offer for a minimum amount of R88,75 million will be completed by 7
October 2003. The proceeds will be used to reduce debt in the Group.
The Group continues to generate positive operating cash flows on a monthly
basis, which is mostly applied to repaying the debt burden and to covering
interest cost. Cash flow has been strengthened through the sale of non-core
assets and businesses (R21 million) as well as a sharp focus on working capital
management.
Currently the direct and indirect cost of the Business Improvement Programme
still exceeds the direct cost benefits achieved. This position is expected to
reverse in the next six to nine months. This should then become a significant
contributor to creating cash flows as the savings are realised.
The measurement of divisional performance now encompasses return on capital and
cash flow measurements in addition to profitability to ensure optimal allocation
of resources in future.
Financial review
The downturn in the IT industry has required AST to apply a more conservative
approach in the financial management of the Group to better reflect the impact
of the downturn on the Group. Substantial once-off costs were incurred to reduce
balance sheet risk and to scale down cost structures. These write-offs combined
with high interest cost and substantial increases in gearing have had a negative
impact.
We report a slight decrease in revenue from R2 220 million to R2 206 million for
the twelve months ended 30 June 2003. Some R84 million of revenue was forgone
due to the sale and closure of non-core businesses. In addition, we have become
more selective in the business we conduct to ensure quality revenue and
earnings.
We continue to operate in a highly competitive environment and as a result the
margin before interest, tax, depreciation, amortisation and abnormal items
reduced to 5,9% from 8,5% in 2002. Although we did not anticipate a positive
margin impact from the Business Improvement Programme during 2003, the operating
margin during the second half of the year improved to 6,0% from 5,7% in the
first half. The Group"s core businesses continue to deliver consistent and
commendable results. These results are however mostly negated by the overhead
and management cost structures.
Non-recurring expenditure amounting to R153,6 million during the year resulted
in an operating loss before amortisation of R85 million. The Board deemed it
appropriate to impair the Group"s investments in non-revenue generating assets
by R23,4 million. Other once-off expenditure related to cost reduction (R26,8
million) and restructuring initiatives (R90 million). The substantial
strengthening of the Rand resulted in an exchange loss of R13,4 million. Net
finance cost has increased significantly to R60,8 million from R3,4 million in
2002 as interest-bearing liabilities and other short-term liabilities increased
by R131 million. We anticipate that with the recapitalisation and rights issue
in October 2003, gearing will reduce by approximately R200 million in the 2004
financial year.
Further anticipated reductions in prime lending rates should have a positive
impact on earnings and cash flow. As a result of the non-recurring expenditure
and high finance cost we reported a headline loss per share of 10,15 cents
compared to a 20,08 cents profit during 2002. The headline loss per share for
the first six months was 9,05 cents.
The calculation of fully diluted shares includes shares that may be issued to
vendors on achievement of profit warranties and the underwritten portion of the
rights issue.
The total loss of R228 million and the increase in gearing had a substantially
negative impact on the balance sheet with net asset value per share dropping
from 58,48 cents per share to 18,46 cents per share and the debt to equity ratio
dropping to 7,33. These ratios are expected to improve substantially during the
next twelve months due to the impact of the rights offer, the repayment of debt
and cash flow generated from improved margins.
Our policy of goodwill amortisation has not changed. No new acquisitions were
made during 2003. We provided for vendor claims of R47,3 million, which
represents the expected payment based on profit warranties achieved.
Approximately R42,2 million will be settled with cash or scrip during 2004. We
show a contingent liability of R24,3 million for vendor payments allowing for
maximum performance against future profit warranties.
The increase in interest-bearing liabilities during 2003 resulted in the
liquidity ratio decreasing from 0,87 to 0,74. The planned repayment of debt
during 2004 and the impact of the rights offer will improve the Group"s
liquidity ratio to more acceptable levels. Debtor days remained at 55.
Capital expenditure
The capital expenditure for the Group during the period under review was R61,2
million, primarily in respect of purchases of income generating computer
equipment. Commitments entered into over the same period to incur future
expenditure amounts to R1,2 million.
Contingent liabilities
The South African Revenue Service (SARS) issued a revised assessment in respect
of the 1999 tax year of a subsidiary of AST Group Limited. In terms of the
revised assessment, certain allowances claimed in terms of section 11(gA) of the
Income Tax Act No 58 of 1962, as amended, have been disallowed by SARS. The
company is in the process of lodging an objection in respect of the revised
assessment. The Group regards the potential impact of the revised assessment as
a contingent liability.
Dividend policy
There will be no dividend payments for the 2003 financial year.
Conclusion
The Board and management of AST are committed to the successful implementation
of the Business Improvement Programme. Significant progress has been made during
2003 to restore the Group to financial health. The Business Improvement
Programme will continue during FY2004 and there is an unquestionable commitment
at all levels of the business to achieving cost saving targets.
Once the recapitalisation is completed during the first half of 2004, we will be
in a good position to continue strengthening the balance sheet and paying off
debt. Remaining vendor liabilities will be settled during the year. With our
selective approach to new opportunities and optimal allocation of capital, we
will be able to unlock value for our shareholders.
We are reengineering our business and will emerge a more agile organisation -
able to provide competitive services and solutions to our customers, and able to
steer the business in line with prevailing market conditions. Our offering
remains competitive - we have an excellent footprint in South Africa; we
understand the industries in which our customers operate and we have an
unquestionable commitment to delivering a competitive advantage to them.
We are committed to achieving full compliance with the requirements of the
second King Report on Corporate Governance. Significant progress was made with
the changes to the Board and the implementation of internal audit and risk
management. A conservative approach continues to underpin all activities and
processes.
I wish to thank our stakeholders including our customers, employees,
shareholders, our Board of Directors, suppliers and our bankers for their
continued support and commitment.
For and on behalf of the Board
John Miller
CEO AST Group 18 August 2003
Audit opinion
PricewaterhouseCoopers Inc. audited the summarised voluntary announcement of
annual results contained herein, as well as the comprehensive financial
statements from which the summarised results were derived. The unqualified audit
reports on the comprehensive financial statements and the summarised financial
results are available for inspection at AST Group Limited registered office.
Going concern
Without qualifying our opinion, we draw attention to the fact that the
comprehensive financial statements have been prepared on the going-concern
basis, subject to the successful refinancing of the Group through the proposed
rights-issue and the effective implementation of the Business Improvement
Programme as discussed above.
PricewaterhouseCoopers Inc.
Board of directors: Hans J Smith (Chairman)*, John Miller (CEO), Marthinus
Erasmus, Pieter Bouwer, Malcolm Macdonald*, Jac van der Walt*, Sipho Ndlovu*,
Mofasi Lekota*, Charles Meintjes*, Johan Potgieter* (* 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
Date: 18/08/2003 07:07:56 AM Produced by the JSE SENS Department
