| Thu 11 Mar 2004, 9:28 | | Results For The Six Months Ended 31 Dec 03 |
|
Ast Group Limited - Reviewed Interim Results For The Six Months Ended 31
Release Date: 11/03/2004 07:00:02 Code(s): AAA
AST Group Limited - Reviewed interim results for the six months ended 31
December 2003
AST Group Limited
(REGISTRATION NUMBER 1998/021790/06 )
Share code: AAA ISIN code: ZAE0000049441
Reviewed interim results for the six months ended 31 December 2003
www.ast.co.za
Income statement
for the six months ended 31 December 2003
Reviewed Unaudited Audited
31 Dec 31 Dec 30 Jun
2003 2002 2003
(6 months) (6 (12
months) months)
R"000 R"000 R"000
Revenue 886 036 1 196 532 2 205 612
Earnings/(loss) before 44 659 (28 148) 385
interest, tax,
depreciationand
amortisation (EBITDA)
Depreciation (28 175) (31 747) (60 565)
Impairment of assets (22 589) (5 262) (23 435)
and investments
(Loss)/profit on sale (4 078) 832 (1 372)
of businesses
Operating loss before (10 183) (64 325) (84 987)
amortisation
Amortisation of (862) (722) (2 062)
intangible assets
Amortisation of (48 160) (79 669) (145 434)
goodwill
Operating loss (59 205) (144 716) (232 483)
Net finance cost (18 473) (21 308) (60 813)
Share of results of 56 53 323
associates
Loss before tax (77 622) (165 971) (292 973)
Tax (12 787) 16 531 48 435
Loss from ordinary (90 409) (149 440) (244 538)
activities
Minority interest (4 671) 15 156 17 057
Net loss for the period (95 080) (134 284) (227 481)
Net finance cost (18 473) (21 308) (60 813)
Interest received 10 037 10 408 20 161
Finance costs (28 510) (31 716) (80 974)
Headline loss per (13,23) (90,48) (101,49)
ordinary share (cent)
Fully diluted headline (13,23) (90,48) (101,49)
loss per ordinary share
(cent)
Basic loss per ordinary (62,11) (234,24) (370,95)
share (cent)
Fully diluted basic (62,11) (234,24) (370,95)
loss per ordinary share
(cent)
Headline loss and basic
loss per ordinary share
for comparative periods
have been restated as a
result of the 1:10
share consolidation in
October 2003
Weighted average number 153 078 57 329 61 323
of shares
Fully diluted number of 161 812 76 672 192 657
shares
Number of shares in 184 285 57 505 67 311
issue
Reconciliation of
headline loss
Net loss for the period (95 080) (134 284) (227 481)
Amortisation of 48 160 79 669 145 434
goodwill
Minority interest in
amortisation of - (2 500) (4 999)
goodwill
Provision for - 815 -
restructuring costs
Loss on impairment of 22 589 5 262 23 435
assets and investments
(Loss)/profit on sale 4 078 (832) 1 372
of businesses
Headline loss (20 253) (51 870) (62 239)
Balance sheet
as at 31 December 2003
Reviewed Unaudited Audited
31 Dec 31 Dec 30 Jun
2003 2002 2003
R"000 R"000 R"000
Assets
Non-current assets 430 764 635 426 506 867
Property, plant and 119 542 158 110 158 634
equipment
Goodwill and intangible 99 657 232 879 147 802
assets
Unlisted investments 15 459 70 868 19 115
Deferred tax asset 196 106 173 569 181 316
Current assets 391 355 588 934 537 279
Rental assets - 42 376 -
Inventories 44 946 30 688 55 082
Trade debtors and other 270 868 447 184 395 065
receivables
Tax asset - - 16 417
Cash and cash equivalents 75 541 68 686 70 715
Total assets 822 119 1 224 360 1 044 146
Equity and liabilities
Capital and reserves 95 942 222 914 124 231
Minority interest 11 571 30 804 9 296
Non-current liabilities 180 796 169 009 182 298
Interest-bearing 160 535 144 111 159 208
liabilities
Deferred tax liability 20 261 14 229 20 068
Amounts due to vendors - 10 669 3 022
Current liabilities 533 810 801 633 728 321
Trade creditors 181 408 316 838 285 044
Provisions 54 346 67 139 67 607
Income received in advance 51 721 147 292 44 589
Short-term portion of 109 633 79 744 238 174
interest bearing
liabilities
Sundry payables (including 67 100 112 545 44 240
payroll vendors and VAT)
Bank overdrafts 55 525 36 005 34 582
Amounts due to vendors 6 258 18 382 14 085
Tax liability 7 819 23 688 -
Total equity and 822 119 1 224 360 1 044 146
liabilities
Net asset value per 52,06 387,65 184,56
ordinary share (cents)
Cash flow statement
for the six months ended 31 December 2003
Reviewed Unaudited Audited
31 Dec 31 Dec 30 Jun
2003 2002 2003
(6 months) (6 months) (12 months)
R"000 R"000 R"000
Operating activities
Cash generated from 9 067 70 288 50 849
operations
Net finance cost (18 473) (21 308) (69 019)
Normal tax paid (8 043) (23 695) (34 131)
Cash (used (17 449) 25 285 (52 301)
by)/generated from
operating activities
Investment
activities
Vendor payments for (2 381) (56 438) (65 316)
past acquisitions
Proceeds from the 20 079 - 21 301
sale of businesses
Other investment (1 627) (33 648) 32 168
activities
Cash from/(used in) 16 071 (90 086) (11 847)
investment
activities
Financing activities
Proceeds from the 88 750 - -
rights issue
Repayment of long- (103 489) (14 249) (11 450)
term borrowings
Cash used in (14 739) (14 249) (11 450)
financing activities
Net decrease in cash (16 117) (79 050) (75 598)
and cash equivalents
Cash and cash 36 133 111 731 111 731
equivalents at the
beginning of the
period
Cash and cash 20 016 32 681 36 133
equivalents at the
end of the period
Statement of changes in equity
for the six months ended 31 December 2003
Reviewed Unaudited Audited
31 Dec 31 Dec 30 Jun
2003 2002 2003
(6 months) (6 months) (12
months)
R"000 R"000 R"000
Share capital 184 58 67
Balance at the beginning 67 58 58
of the period
New shares issued during 117 - 9
the period
Share premium 350 175 209 999 236 209
Balance at the beginning 236 209 207 059 207 059
of the period
Premium on new shares 120 264 - 23 969
issued during the period
Share issue expenses (6 420) (61) (1 553)
written off during the
period
Utilisation of treasury 122 3 001 6 734
shares during the period
Vendor claims 8 298 73 084 30 206
Balance at the beginning 30 206 46 460 46 460
of the period
Changes in amounts due (21 908) 26 624 (16 254)
to vendors during the
period
Distributable reserves (230 216) (66 327) (135 136)
Balance at the beginning (135 136) 65 531 83 614
of the period
- as shown previously (135 136) 78 278 78 278
- adjusted for AC 133 - (12 747) 5 336
Net loss for the period (95 080) (134 284) (227 481)
Currency translation - 2 426 -
differences for the
period
Transfer to non- - - 8 731
distributable reserves
Non-distributable (32 499) 6 100 (7 115)
reserves
Balance at the beginning (7 115) 4 409 4 409
of the period
Realised profits on cash - 4 852 5 951
flow hedges
Transfer from - - (8 731)
distributable reserves
Currency translation (25 384) (3 161) (8 744)
differences for the
period
Balance at the end of 95 942 222 914 124 231
the period
CEO"s report
Introduction
During the period under review, we continued to focus on implementing the
Business Improvement Programme. We are pleased to announce results that
demonstrate that the benefits are starting to come through. This is evidenced by
the improved operating margins and a significant reduction in our total
liabilities. Maintaining our capability and competence has remained a high
priority and we have implemented a number of refinements, making us Fit for
Business.
Milestones
In the first half of fiscal 2004, we achieved a number of milestones towards
returning our company to financial health in a tough environment:
* The rights offer was successfully implemented with 63% of our shareholders
following their rights. The proceeds of R88,75 million were applied to debt. On
completion of the rights offer, we undertook a 10:1 share consolidation. These
actions have resulted in a stronger balance sheet.
* We completed the sale of the nine business units which were identified as non-
core soon after commencing the Business Improvement Programme. We also concluded
shared equity arrangements with two more businesses.
* The Business Improvement Programme did cause some initial uncertainty with our
staff but our business environment has normalised, our relationships with our
funders are good and our customer base has strongly supported us throughout the
process.
* We have maintained the momentum of the Business Improvement Programme. The
programme is well advanced and we are now anticipating sustainable annualised
cost savings of at least R260 million compared to the historic cost base. The
full effect of this will only be realised in our next fiscal year, as previously
advised. We are currently seeing R15 million of cost savings per month on our
run rate compared to July 2003, despite some pressure on revenue.
* AST achieved a profitable return at the EBITDA level, reflecting a margin of
5,0% compared to (2,4%) for the corresponding period.
* We focused on improving governance at all levels in the business and have
formalised risk management, which is now independently audited.
Business update
AST is divided into three core divisions namely Solutions, Infrastructure
Services and Products. The Products division focused on consolidating, defining
and rebuilding the division and supplier relationships. This division
experienced a slow start to the financial year but has a strong sales pipeline
that will ensure increased revenue-generating activity for the second half of
the year. It is expected that margins will also improve when this rebuilt
products division gains momentum - we are increasingly seeing product sales
leading future service opportunities, which should enhance the sales mix. The
Infrastructure Services division also had lower than anticipated revenues mainly
due to contracts that had been delayed. The division was part of the first wave
of the Business Improvement Programme in August 2003 and the implemented ideas
have already had a positive impact on the margins. The Solutions division
performed well and delivered revenue in line with budgets for the first six
months of 2003.
We continue to make progress within our sales environment, which was identified
as a key element of the Business Improvement Programme. During 2003, we
appointed highly skilled National Sales Managers to head up each of our core
business units. Our sales processes ensure that we are selective in our
participation in new business opportunities, so protecting the margins. We have
simplified our sales process and automation of bid management is reducing the
expense of pursuing new business. Sales support functions have been
consolidated.
Our historic investment in specialist industry focus areas continues to be a
competitive advantage in our market. As a result of our continued ability to
deliver solutions in line with our customers" expectations, they have supported
the recent improvements in AST. We have retained our major customers, but have
experienced pressure to reduce their IT costs, which in turn put pressure on
both revenue and margins. We have added several large new organisations to our
client base and key clients awarded us contract extensions during the six
months.
Business Improvement Programme update
The implementation of the Business Improvement Programme (BIP) continued to be
the highest priority for our management team. The idea generation and planning
phase of the programme will be completed by the end of March 2004 as planned.
Full implementation is set for December 2004.
We are pleased with results to date and the progress suggests that sustainable
annualised cost savings of R260 million are now achievable. In addition, the
once-off costs associated with the BIP are well within budget.
We have successfully reduced total monthly base salaries by R10,3 million per
month since December 2002. In addition, the in-depth analyses associated with
the BIP has enabled us to reduce headcount from 3 662 to 3 061 over the same
period, without significantly affecting delivery capability. In fact, our
customer satisfaction has increased, as measured in recent surveys or service
level agreements. We have been successful in retaining key personnel, although
we realise that this will need to be carefully managed when demand for ICT
skills turns.
The once-off costs associated with BIP implementation are expensed as incurred.
Second half costs will be lower than first half. The operating margin will
normalise in 2005 as these costs are eliminated and the programme is fully
implemented. Further efficiencies rolled out as part of the BIP should also
enhance profitability.
The BIP will evolve into a continuous improvement programme in order to ensure
that the efficiencies that have been introduced during the implementation are
enhanced into the future.
Financial update
Reported revenue of R886,0 million represents a 15,2% reduction on a comparable
basis, excluding the contribution of non-core business units sold. The reasons
for this reduction include difficult market conditions; rebuilding the sales
force while implementing the BIP, and a more stringent approach to participation
in new business opportunities. The disposal of non-core businesses resulted in
R128,4 million lost revenue.
The improvement in operating margin, which was already starting to reflect in
our 2003 annual results, has continued as the benefits of the BIP become more
visible. EBITDA improved from (2,4%) in the first half of 2003 to 5,0% for the
six months ended 31 December 2003. This reported EBITDA includes costs of R26,9
million associated with retrenchments and implementing the BIP. Excluding these
once-off costs our normalised EBITDA margin was 8,1%.
The proceeds of the rights offer were applied to the repayment of debt, which,
together with the lower interest rate environment, resulted in reduced finance
costs of R18,5 million versus R21,3 million in the comparable period.
Reported headline loss of R20,3 million represents an improvement of 60% on the
R51,9 million loss reported in the comparable period. This represents a headline
loss per share of 13,23c compared to a loss of 90,48c (after adjusting the
comparative figure for the 10:1 consolidation which occurred in October 2003).
The focus on improving the strength of our balance sheet is also paying off.
Total liabilities decreased from 30 June 2003 by R196,0 million of which R106,3
million was the reduction of interest-bearing liabilities. Our stringent working
capital strategy implemented during the first half of 2003 is working - as
demonstrated by a 25,4% decrease in net current liabilities from 30 June 2003.
Cash generated from operations shows a decline from R70,3 million in December
2002 to R9,1 million in the six months ended December 2003. However, the figures
are not directly comparable. Cash from operations in December 2002 included the
sale of certain debtor invoices and pre-payments totalling R59,0 million. These
funds were converted to interest-bearing debt as part of the funding agreement
which became unconditional in August 2003 at the time of the rights issue.
We have impaired AST"s remaining preference share investment of R22,6 million in
AST Botswana following the sale of the business.
Capital expenditure
The capital expenditure for the Group during the period under review was R3,6
million, primarily in respect of purchases of income generating computer
equipment. Commitments entered into over the same period to incur future
expenditure amounted to R1,2 million.
Contingent liabilities
As disclosed in our annual financial statements to June 2003, 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, to the value of R503,5 million have been disallowed by
SARS. The company lodged an objection in respect of the revised assessment and
are waiting for a decision. The Group regards the potential impact of the
revised assessment as a contingent liability.
Dividend policy
There will be no dividend payments for the 2004 financial year.
Prospects
AST is emerging from the Business Improvement Programme Fit for Business. Our
competitive advantages are intact, with our capability and capacity to deliver
cost-effective, flexible and dynamic solutions to our customers with the in
depth industry knowledge supporting all offerings.
The corporate market is currently focused on custom-made solutions and
personalised service. IT departments require cost-effective implementation. Our
Business Improvement Programme will enable us to meet both the market"s service
and cost requirements.
The improving worldwide economy is giving rise to an expected recovery in global
technology spend from the corporate market. However, we expect the challenging
market conditions to persist - until our economic conditions improve.
During the second half of the financial year, which is traditionally stronger
than the first half, our focus remains on strengthening the balance sheet
through reduced gearing and completing the implementation of the Business
Improvement Programme. Almost all of the costs associated with its
implementation will be absorbed during the current financial year with the full
financial benefit becoming evident in 2005.
Black Economic Empowerment (BEE) continues to gain importance in procurement
decisions in the corporate market. We realise the importance of transformation
in our Group but felt we needed to see significant progress on the BIP before
giving attention to BEE. We are now seriously addressing the introduction of a
meaningful BEE equity partner to AST.
Our offering is well positioned and we will continue to ensure that it is
competitive going forward by taking into account changes in market conditions
that result from technology advances.
Conclusion
We have made significant progress in ensuring the sustainability of AST during
the past six months. We now have a solid platform on which to continue building
our organisation, addressing BEE and transformation, and strengthening our
balance sheet. For us to capitalise on the success of the BIP we now need to
focus on increasing revenue at acceptable margins. We are well positioned to
participate in new opportunities - and we have a solid value proposition.
We regrettably announce the resignation of non-executive director Sipho Ndlovu
with effect 10 March 2004. We thank him for his contribution to the Group over
the years and wish him well in his future endeavours.
I wish to thank our customers, employees, shareholders, suppliers and our
bankers for their continued support and commitment.
And finally, sincere thanks to the board of directors for their support and
assistance.
For and on behalf of the Board
John Miller
CEO AST Group
11 March 2004
Audit review report
PricewaterhouseCoopers Inc"s unmodified review report on the condensed
consolidated interim financial statements contained in this interim report is
available for inspection at AST Group Limited"s registered office.
Financial policy statements
* The financial statements of AST Group and its subsidiaries are prepared in
accordance with and comply with the Statements of Generally Accepted Accounting
Practice of South Africa.
* The accounting policies of the Group and its subsidiaries are consistent in
all material respects with those applied in the previous financial year.
* Where necessary, comparative figures have been adjusted to conform to changes
in presentation in the current period.
Board of directors: Hans J Smith (Chairman)*, John Miller (CEO), Marthinus
Erasmus, Pieter Bouwer, Malcolm Macdonald*, Jac van der Walt*, 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
