| Tue 10 Feb 2004, 11:20 | | RESULTS FOR THE SIX |
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Cs Computer Services Holdings Limited - Unaudited Interim Results For The Six
Release Date: 10/02/2004 09:30:00 Code(s): CSH
CS COMPUTER SERVICES HOLDINGS LIMITED - UNAUDITED INTERIM RESULTS FOR THE SIX
MONTHS ENDED 31 DECEMBER 2003
CS Computer Services Holdings Limited
(Registration number 1996/015131/06
(Incorporated in the Republic of South Africa)
JSE Share code: CSH
ISIN: ZAE000022034
CS Holdings
Making Business sense of IT
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2003
GROUP INCOME STATEMENT
Restated
6 Months 6 months
ended 31 December ended 31 December
R"000 2003 2002
Revenue 255 923 222 030
Cost of sales 170 395 143 084
Gross profit 85 528 78 946
Operating costs 64 479 70 090
Operating profit/(loss) before
depreciation 21 049 8 856
Depreciation and amortisation 6 359 6 198
Profit/(loss) before exceptional
item 14 690 2 658
Exceptional item - Restructuring
costs 7 934
Profit/(loss) before interest 6 756 2 658
Net interest paid (3 283) (3 326)
Share of results of associate 437
Profit/(loss) before goodwill
amortisation 3 473 (231)
Goodwill amortisation 6 478 6 763
Loss on sale of investment in
associate
Loss before tax (3 005) (6 994)
Income tax 417 (28)
Net loss for the period (3 422) (6 966)
Minority interest
Attributable loss for the period (3 422) (6 966)
Reconciliation of headline
earnings/(loss)
Attributable loss for the period (3 422) (6 966)
Adjusted for:
Goodwill amortisation 6 478 6 763
Loss on sale of investment in
associate
Headline earnings/(loss) 3 056 (203)
Weighted average number of shares
in issue (thousand) 245 444 225 663
Fully diluted number of shares
(thousand) 249 852 230 129
Loss per share (cents)
Basic (1,39) (3,09)
Fully diluted (1,37) (3,03)
Headline earnings/(loss) per share
(cents)
Basic 1,25 (0,09)
Fully diluted 1,22 (0,09)
6 Months Audited 12 months
ended 30 June ended 30 June
R"000 2003 2003
Revenue 208 455 430 485
Cost of sales 151 054 294 138
Gross profit 57 401 136 347
Operating costs 66 478 136 568
Operating profit/(loss) before
depreciation (9 077) (221)
Depreciation and amortisation 7 036 13 234
Profit/(loss) before exceptional item (16 113) (13 455)
Exceptional item Restructuring costs
Profit/(loss) before interest (16 113) (13 455)
Net interest paid (6 383) (9 709)
Share of results of associate (22) 415
Profit/(loss) before goodwill
amortisation (22 518) (22 749)
Goodwill amortisation 5 761 12 524
Loss on sale of investment in associate 115 115
Loss before tax (28 394) (35 388)
Income tax (9 719) (9 747)
Net loss for the period (18 675) (25 641)
Minority interest 10 10
Attributable loss for the period (18 685) (25 651)
Reconciliation of headline
earnings/(loss)
Attributable loss for the period (18 685) (25 651)
Adjusted for:
Goodwill amortisation 5 761 12 524
Loss on sale of investment in associate 115 115
Headline earnings/(loss) (12 809) (13 012)
Weighted average number of shares in
issue (thousand) 233 668 233 668
Fully diluted number of shares
(thousand) 240 457 240 457
Loss per share (cents)
Basic (8,00) (10,98)
Fully diluted (7,77) (10,67)
Headline earnings/(loss) per share
(cents)
Basic (5,48) (5,57)
Fully diluted (5,33) (5,41)
ABBREVIATED GROUP CASH FLOW STATEMENT
Restated Audited
6 months 6 months 12 months
31 December 31 December 30 June
R"000 2003 2002 2003
Cash generated/(outflow)
from operating activities 10 692 (3 173) (15 761)
Cash outflow from
investing activities (29 355) (23 589) (24 819)
Cash (outflow)/inflow
from financing activities (12 413) 16 806 24 258
Net decrease in cash
and cash equivalents (31 076) (9 956) (16 322)
Cash and cash equivalents
at the beginning
of the year (5 085) 11 237 11 237
Cash and cash equivalents
at the end of
the period (36 161) 1 281 (5 085)
Cash generated by
operations as percentage
of EBITDA 103% 18% (156)%
Cash flow from
operating activities
per share - Basic (cents) 4,36 (1,41) (6,98)
- Fully diluted (cents) 4,28 (1,38) (6,85)
STATEMENT OF CHANGES IN EQUITY
Restated Audited
6 months 6 months 12 months
ended ended ended
31 December 31 December 30 June
R"000 2003 2002 2003
Share Capital 2 454 2 454 2 454
Balance at the beginning of the
year 2 454 2 082 2 082
New shares issued during the
period 372 372
Share Premium 114 873 113 040 114 873
Balance at the beginning of the
year 114 873 79 861 79 861
Premium of new shares issued
during
the period 33 294 33 294
Treasury shares released 1 833
Share issue expenses written off (115) (115)
Shares to be issued for
acquisitions 83 2 667 472
Balance at the beginning of the
year 472 19 730 19 730
New shares to be issued 18 403 17 000
New shares issued during the
period (33 666) (33 666)
Treasury shares available to
vendors (1 742) (2 210)
Transfers (389) (58) (382)
Distributable Reserves 32 643 54 750 36 065
Balance at the beginning of the
year 36 065 61 716 61 716
As previous reported 64 624 64 624
Adjusted for change in accounting
policy (2 908) (2 908)
Net loss for the period (3 422) (6 966) (25 651)
Total equity 150 053 172 911 153 864
GROUP BALANCE SHEET
Restated Audited
31 December 31 December 30 June
R"000 2003 2002 2003
ASSETS
Non-current assets 167 098 151 744 159 044
Fixed assets 50 389 42 014 41 271
Defer red tax asset 30 520 21 134 31 867
Intangible assets 82 587 81 780 80 887
Investment in associate 512
Long term contract 1 276 1 923
Other investments 1 350 4 165 1 350
Loan to share incentive trust 976 1 406 976
Loans 733 770
Current assets 127 177 136 286 159 959
Trade receivables 90 768 89 936 96 192
Inventory 3 665 6 968 10 241
Work in progress 23 910 18 114 19 614
Cash and cash equivalents 13 370 26 625
South African Revenue Services 313 768
Other receivables and prepayments 8 521 7 898 6 519
Total assets 294 275 288 030 319 003
EQUITY AND LIABILITIES
Share capital and premium 117 327 115 494 117 327
Shares to be issued 83 2 667 472
Accumulated profits 32 643 54 750 36 065
Ordinary shareholders" interest 150 053 172 911 153 864
Non current liabilities 3 192 12 990 5 511
Interest bearing borrowings 3 187 10 833 3 878
Amounts due to vendors 2 157 1 628
Minority interest 5 5
Current liabilities 141 030 102 129 159 628
Trade and other liabilities 90 599 78 682 90 141
Short-term portion of long-term
liabilities 2 450 2 115 3 062
Short-term portion of amounts
due to vendors 674 6 862 10 484
Short term loans 2 350 13 460
South African Revenue Services 1 028 580 4 028
Deferred revenue 7 768 1 801 6 743
Bank overdraft 36 161 12 089 31 710
Total equity and liabilities 294 275 288 030 319 003
Number of shares issued (thousand) 245 444 245 444 245 444
Net tangible asset value per share
(cents) 27,49 37,13 29,73
Net asset value per share (cents) 61,14 70,45 62,69
INTRODUCTION
The Board of Directors of CS Holdings are pleased to present the interim
results of the Group for the six months ended 31 December 2003, which reflect
an improved outlook for the Group. The restructuring and rationalisation plan
is well underway and the results show a return to profitability at headline
earnings level for CS Holdings.
RESTATED COMPARATIVE RESULTS
The comparative financial results have been restated with the pro-rata
financial effect of the items referred to in the trading updates published on
SENS and in the media on 21 August 2003, which relate to the first six months
of the previous financial year. The items include:
* The cancellation of the sale of the rights to a software product entered
into during the first six months of the previous financial year;
* Write-off of certain assets;
* Negative impact of the change in accounting policy in the previous
financial year; and
* Adoption of AC 133.
HIGHLIGHTS
* The introduction of Reunert Limited as a strategic shareholder to the Group
with a 31,7% shareholding in CS Holdings. The alliance with Reunert, which
is a prominent player in the electronics and office automation sector, will
provide synergistic opportunities for CS Holdings and access to a greater
client base. Two directors from Reunert were appointed as non-executive
directors to the Board of CS Holdings.
* The large contracts recently secured by CS Holdings, such as SARS FIMS
("Financial Improvement Management System" project, Legal Aid Board "
Financial Administration, Workflow and Integration project as well as a SAP
HR & Payroll implementation for the Government of Zambia, have affirmed CS
Holdings" capacity for excellent service delivery and its capabilities in
the market. The ability to deliver and execute large-scale projects of this
nature has been proven with high quality service delivery.
* The commencement of a large outsourcing transaction with First National
Bank, whereby its IT Customer Services division was integrated with CS
Holdings, effective 1 August 2003. The success of this contract has firmly
established the company"s position as a credible solutions provider in the
financial services sector.
* The company"s order book and pipeline remains strong. CS Holdings"
integrated business model and strategic relationship with key clients
continues to develop and expand with a resultant increase in additional
and/or annuity-based revenue.
STRATEGIC REVIEW
During the past six months, CS Holdings has continued to invest in its key
account strategy. This strategy involved the restructuring of the business
development division into one focused team that sells specialised and
integrated solutions to a strategic client base, through the company"s three
core operations: People Division, Process Division and Technology Division.
Key successes during the six-month reporting period, which will have an impact
on the company"s success going forward, include:
* Focusing on organic growth with an emphasis on outsourcing and annuity-
based contracts;
* Structuring the Group to provide integrated business solutions across
different functional areas, allowing it to achieve true integration for its
customers;
* Driving the company"s business model toward continually providing business
value to its customers through long-term outsourcing and partnership
engagements;
* Strengthening and enhancing the successful BEE position the company has
established; and
* Establishing a presence in Africa targeting aid-agency funded contracts.
OPERATIONAL REVIEW
As part of its restructuring exercise, CS Holdings has decreased the number of
permanent staff and increased its base of contractors, thereby effectively
scaling down on fixed infrastructure costs yet allowing for capacity on service
provision.
People Division
CS Holding"s cost reduction activity has started to bear fruit and has returned
the division to a more acceptable net operating profit margin of 6% for the
reporting period, despite the usual negative impact that the month of December
has on its business. Furthermore, CS Holdings has gained significant progress
in the e-learning environment and, to date, the learnerships have formed a
strategic part of the division"s activities. The division"s CRM model,
introduced in the preceding year, is producing results and is well entrenched
in the division"s strategic client base.
Process Division
With a slightly improved six-month performance relative to the comparative
six-month reporting period, the division"s focus has been predominantly on
projects and consultants with a concerted drive to convert employees into
contractors to suit the flexibility of market demands. The division reported an
increase in its net operating profit margin to 8% compared to a loss during the
previous reporting period. With a fixed team of specialists and the flexibility
of contractors to suit the cyclical demands of the market, the division is well
placed for the forthcoming reporting period.
Technology Division
During the period under review, the IT Solutions division focused on the
integration of First National Bank"s IT Customer Services Division, as well
as the process of rationalisation and streamlining the business which commenced
last year. Margins are expected to increase in the next reporting period as a
result of a continuous business improvement process. The division has
established a strong annuity client-base in the financial, retail and ICT
sectors, which bodes well for the future.
Long-term implementation projects are on track and business focus remains on
long-term projects to allow for predictable revenue streams. The business
continues to provide excellent client service and delivery.
FINANCIAL PERFORMANCE
The Group returned to headline profitability during the period under review.
Revenue increased by 22,8% from the second six-month period of the financial
year ended 30 June 2003, and by 15,3% compared to the corresponding period of
the previous financial year. The gross profit margin improved from 27,5%
recorded in the second six-month period of the previous financial year to 33,4%
during the period under review. This improvement was mainly due to the increase
in revenue, higher productivity and the early impact of a flexible business
model resulting from the restructuring and rationalisation programme. Operating
costs are under control as is evident from the positive movement in the
operating costs in the three reporting periods.
EXCEPTIONAL ITEM
The Group embarked on a restructuring and rationalisation programme in order to
streamline business units to a more flexible business model in line with
changing market conditions. The non-recurring costs relating to this
restructuring programme are disclosed separately under the exceptional item in
the income statement. The restructuring and rationalisation programme should be
concluded in the second part of the financial year.
MARGINS
Operating margin before exceptional items was 5,7% compared to 1,2% in the
corresponding financial period of the previous financial year. Margins are
traditionally lower in the first half of the financial year and are expected to
improve slightly in the second half.
BALANCE SHEET
The non-current assets increased by approximately R9 million mainly as a result
of the investment made with the incorporation of First National Bank"s (FNB) IT
Customer Services Division into CS Holdings" Managed Services division,
effective from 1 August 2003. This investment was funded by cash generated from
operations, which has had a negative impact on the current ratio. It is
expected that the current ratio will improve during the next financial period
with positive cash generation from operations entering into working capital.
CASH UTILISED IN OPERATING ACTIVITIES
Cash generated from operations as a percentage of EBITDA improved to 103% as a
result of the concerted effort to improve debtors collecting days and to reduce
inventory levels, whilst maintaining normal creditors" payment terms. This
higher-than-normal cash generation percentage should return to a level of about
90% during the next financial period.
INVESTMENT ACTIVITIES
Investment activities during the period relate to:
* Activities to maintain operations R 6,1m
* Investment in the FNB transaction R 9,2m
* Payments to vendors for past acquisitions R11,4m
* Investment in capital base and infrastructure R 2,7m
Total R29,4m
These activities were budgeted for. The outstanding investment activities,
budgeted for include the last payments to vendors of R0,6 million for past
acquisitions (as disclosed under current assets) and normal investment
activities to maintain operations. No further acquisitions are anticipated in
the short and medium term.
FINANCIAL ACTIVITIES
The Group repaid R11 million of its short-term bridging loans raised during the
previous financial year.
Segment Reporting
CS Systems Integration CS IT Solutions CS Education Solutions Total
R"000 R"000 R"000 R"000
Revenue 63 166 158 538 34 219 255 923
Operating profit 5 260 7 268 2 162 14 690
DIVIDENDS
The current policy is not to pay dividends and to retain all earnings to fund
growth. The Board of 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, and
incorporate the accounting policies of the Group, which are consistent in all
material respects with those adopted in the previous financial year.
PROSPECTS
Traditionally, the Group"s financial results are lower in the first half of the
financial year. The Board anticipates that the financial results for the second
half of the financial year will exceed those achieved in the first half. The
Board is confident that the Group is focused and has a differentiated and
integrated business model that is geared to perform well in a market where no
significant upswing in IT spending is evident. As a leading BEE company in the
IT sector that is committed to adding value to its customers, CS Holdings is
well positioned to gain market share in a consolidating IT market.
On behalf of the Board of Directors:
Annette van der Laan Paul Reeves
Chief Executive Officer Chief Financial Officer
10 February 2004
Midrand
Registered Office Transfer Secretaries
CS Holdings Office Park Compushare Limited
241 Third Road 70 Marshall Street
Halfway Gardens Johannesburg
Midrand
Board of Directors:
TH Zuma* (Chairman), A van der Laan (CEO), LM Nyhonyha *, G Pretorius*,
BP Gallagher*, NV Qangule* (Alt)
DJ Rawlinson* (Alt), CN Scoble* (Alt), PN Reeves, MP Nyama, DL Vink,
AJ Holden
*non-executive
Company Secretary:
JG Goosen
