| Wed 29 Sep 2004, 8:26 | | Audited results for the year ended 30 June 2004 |
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AST - Audited results for the year ended 30 June 2004 and further cautionary
announcement
AST GROUP LIMITED
(Incorporated in the Republic of South Africa)
Company registration number 1998/021790/06
Share Code: AAA
ISIN: ZAE000049441
(`AST` or `the company`)
Audited results for the year ended 30 June 2004
www.ast.co.za
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, including the impact of the 1:10 share
consolidation.
2004 CEO`s report
Introduction
2004 has been a watershed year for the AST Group. We embarked on an intensive
remake of our business which has resulted in a leaner, more efficient and more
competitive operation. Throughout this process maintaining our delivery
capability and increasing client satisfaction was a high priority. Both clients
and staff fully supported the process.
AST has emerged from a challenging year well positioned to offer clients cost-
effective solutions combined with our specialist industry skills - a significant
competitive advantage.
Strategic highlights
Business highlights
- The Business Improvement Programme (BIP) was successfully implemented but the
full benefits have not yet accrued. This will now be followed by a rigorous
Continuous Improvement Programme (CIP). Annualised cost savings from the BIP
will be well in excess of the previously stated target of R260 million against
the historic cost base.
- Improved client focus is evidenced by the renewal of major contracts and the
retention of all key clients. Improved sales processes are in place and we have
won significant new business.
- The Information and Communication Technology (ICT) market and our operating
environment continued to be challenging and highly competitive. This is
reflected in our revenue, which reduced by 7,8% on a comparable basis. Many
client organisations are under pressure to reduce their costs and this impacts
on our revenue.
- We disposed of business entities regarded as non-core and have restructured
the operating divisions.
Financial highlights
- 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 1:10 share consolidation in
October 2003.
- Margins improved as a result of good cost control and cash management
disciplines. We achieved a profitable return at the Earnings before Interest,
Tax, Depreciation, Amortisation, impairment and sale of business (EBITDA) level,
reflecting a margin of 6,1% compared to 0,0% for the corresponding period.
Excluding once-off costs our normalised EBITDA margin was 8,9% for the year and
9,8% for the second half of the year.
- We have reduced the Group`s liabilities by R182,5 million of which R104,9
million relates to interest-bearing debt.
Events after year-end and further cautionary announcement
- We continue to focus on strengthening our balance sheet and in this regard a
significant milestone has been achieved after year-end. We have reached a
conditional agreement with South African Revenue Services (`SARS`) regarding
historic uncertainties.
- Agreements, which are subject to certain conditions precedent, have also been
reached between AST, its major funders, and Gijima Info Technologies Afrika
(Pty) Limited (`Gijima`), a respected and reputable wholly Black-owned ICT
Company.
The execution of these agreements will result in both the recapitalisation of
the AST Group, by means of a rights offer underwritten in a minimum amount of
R106,75 million significantly strengthening the balance sheet and the
introduction of a substantial Black Economic Empowerment shareholding in AST
Group.
- The empowerment shareholding will be achieved by Gijima reversing certain of
its Information Technology assets into AST Group for the issue of new shares,
which will result in Gijima holding at least 30% of the merged entity.
- Full details of the proposed transactions, the conditions to which they are
subject and the financial effects thereof will be communicated to the market as
soon as possible. Shareholders are advised to continue to exercise caution when
dealing in their AST shares until such detailed announcement is made.
Operating update
Successful implementation of the BIP was a high priority for our management team
throughout the year. We completed the project on time, but, as previously
stated, most of the benefits will only accrue in the year ending June 2005 and
onwards. Service delivery and client satisfaction were imperatives in the
implementation and we have emerged with our competitive advantages intact. We
improved efficiency, reduced cost of operations and enhanced our knowledge of
the different industries on which we focus to ensure a sound value proposition.
These competitive advantages will distinguish AST in a technology services and
solutions market, which is becoming increasingly commoditised.
To date, we have implemented cost savings, that, on a comparable basis, exceeded
R20 million per month for the first time in August 2004. Annualised cost savings
will exceed R300 million. We reduced our headcount by 16,5%, since March 2003,
to just over 3 000, without compromising our ability to service our clients.
The follow-on Continuous Improvement Programme will ensure that the performance
improvements introduced with the BIP will be sustainable. We are entrenching a
culture where continuous improvement becomes normal operational practice
throughout the organisation. We have set targets of at least 5% performance
improvement by 2006.
The progress made within the divisions is, on the whole, pleasing and reflects
that our management teams are maintaining their focus on operations while also
implementing the BIP.
The Solutions division performed well in the project environment, benefiting
from operational disciplines and associated back-up systems. A number of new
projects were awarded to Solutions as a result of our industry specialisation
skills in financial services, mining, manufacturing and telecommunications.
We integrated our (software) products division into the Solutions division as
there were synergistic benefits to be gained, particularly in the consolidation
of the project management and delivery capability of the two divisions. The
solutions division won significant projects at Aluminium Bahrain and Nampak.
Our Advanced Financial Services (AFS) offering in the financial services
environment has now been sold to three of the four big South African retail
banks, a consortium of all the banks in Namibia and a consulting engagement with
the Central Bank of Lesotho.
The Infrastructure Services division`s successful renewal of several key
contracts attests to its continued delivery on clients` service level
requirements. Its offering is well positioned in the market and the division is
able to offer cost-effective solutions.
The Networks division, which delivers both voice and data solutions, performed
below expectation, particularly on the data networking products. We have
appointed a group executive director and a strong management team to address
this situation and are already seeing the benefits.
Despite difficult and highly competitive market conditions, we have been
successful in winning new clients, new business and renewing contracts with our
major clients during the year. Some wins include Sun International, Clover and
Impala Platinum and we have renewed our contracts with Absa, Ispat Iscor and
Kumba Resources. Our client centric approach, which encompasses account and
service management as well as operational delivery, is starting to pay off.
Events after year-end
As disclosed in the cautionary announcement above AST has, subsequent to the
financial year under review, entered into conditional agreements that will both
strengthen the balance sheet and introduce black economic empowerment to the
Group.
In summary, the agreements:
- provide clarity around uncertainties that previously existed with the SARS;
- commit to the conversion of R106,75 million of interest-bearing debt of major
funders into equity, which significantly reduces debt; and
- address the reversal of certain businesses belonging to Gijima, a wholly
Black-owned ICT Company, into AST Group in exchange for equity.
Set out below is AST`s unaudited, pro forma balance sheet taking into account
the impact of the events after year-end described above. It is provided for
illustrative purposes only to show the effect of these events, had they occurred
on 30 June 2004.
Unaudited
Audited Pro forma
R`000 R`000
Capital and reserves 29 348 198 968
Minority interest 14 579 14 579
Non-current liabilities 273 137 165 441
Interest bearing 231 740 124 044
Other 41 397 41 397
Current liabilities 455 003 453 003
Interest bearing 95 240 80 240
Other 359 763 372 763
Total equity and liabilities 772 067 831 991
Non-current assets 367 190 369 114
Current assets 404 877 462 877
Total assets 772 067 831 991
% %
Key ratios
Gearing ratio 1 114 103
Equity as a % of total assets 3,8 23,9
Current ratio 0,89 1,02
Financial update
Reported revenue for the year of R1 734,6 million represents a 7,8% reduction on
a comparable basis, excluding the contribution of non-core business units sold
during the last two years. The reasons for this reduction include continued
tough market conditions, focus on profitable core business revenue and the
stringent approach to new business opportunities. The disposal of non-core
businesses resulted in a R387,1 million loss in revenue.
The reported EBITDA margin improved from 0,0% to 6,1% for the 12 months under
review. EBITDA improved from 5,0% in the first half of 2004 to 7,1% for the six
months ended 30 June 2004.
Improvement in the normalised EBITDA margin is illustrated in the table below:
30 June 30 June 31 Dec 30 June
2004 2004 2003 2003
12 months 6 months 6 months 12 months
R`000 R`000 R`000 R`000
Reported EBITDA 105 290 60 631 44 659 385
BIP and retrenchment costs 49 197 22 320 26 877 26 790
Other non-recurring expenses - - - 101 961
154 487 82 951 71 536 129 136
Normalised EBITDA margin 8,9% 9,8% 8,1% 5,9%
The Group achieved an operating profit before amortisation of R21,2 million
compared to a loss of R85,0 million in 2003.
Finance costs reduced to R43,6 million from R60,8 million in the comparable
period as the proceeds of the rights offer were used to reduce interest-bearing
debt whilst lower interest rates also contributed.
Reported headline loss of R13,1 million represents an improvement of 78,9% on
the R62,2 million loss of 2003. This translates into a headline loss per share
of 8,56c compared to a loss of 101,49c (after adjusting the comparative figure
for the 1:10 consolidation in October 2003).
Total liabilities decreased by R182,5 million. Interest-bearing liabilities
reduced by R104,9 million. Net current liabilities show a 73,8% reduction from
the previous year.
The payment terms of a substantial portion of our interest-bearing debt have
been deferred for a minimum of 12 months in anticipation of the events after
year-end described above.
Cash generated from operations showed a 64,0% improvement from R50,9 million in
June 2003 to R83,4 million in the twelve months ended June 2004.
As disclosed in our interim results, we impaired AST`s remaining preference
share investment of R22,6 million in AST Botswana.
Our policy of goodwill amortisation remains unchanged. No new acquisitions were
made during 2004 and the goodwill on the balance sheet was R36,7 million at 30
June 2004. The last remaining vendor claims amount to R8,4 million (2003: R47,3
million), which includes the expected payment based on profit warranties
achieved.
Contingent liability
As at 30 June 2004 and as reported in AST`s annual report for the year ended 30
June 2003, a contingent liability exists in relation to a trademark deduction,
which is the subject of a dispute with SARS.
The Group will continue to regard the potential impact of the revised
assessments, including penalties and interest, as a contingent liability until
the post year-end agreements referred to above, become unconditional.
Capital expenditure
The capital expenditure for the Group during the period under review was R24,6
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.
Dividend policy
There will be no dividend payments for the 2004 financial year.
Prospects
Having completed the restructuring and ensuring that the benefits are
sustainable, we have considered the way forward in three dimensions - strategic,
client and financial imperatives.
Our business environment will continue to change fundamentally. We recognise
that the transformation of our Group at all levels is vital to our future
success. The internal transformation continues and we are investing a
significant effort to meet our employment equity and procurement targets. Our
BEE strategy, at the shareholder and management level, will be addressed through
Gijima. This accelerates both the transformation and the implementation of a new
growth strategy driven by the synergies within the merged entities.
The foundations for achieving our financial objectives were laid in early 2003.
The company has successfully built on these foundations thus enabling a marked
improvement in the operational results of the business. The remake of our
business has already resulted in improved profitability and further improvements
should be evident in 2005 as the costs associated with the Business Improvement
Programme are eliminated. The priority is now to ensure that the improved
profitability and the benefits of stringent cash management continue to flow
through to the balance sheet. In addition, the events after year-end position us
strongly for the years ahead.
Our client imperatives are inherently linked to our competitive advantage. The
corporate environment is currently driven by tangible value add at the lowest
possible cost. We recognised these trends early in the cycle, which resulted in
our investments in industry solutions and our quest to build economies of scale
in our infrastructure delivery activities. The remake of AST has enhanced our
competitive advantage on both these fronts and we are well positioned for the
year ahead and beyond. However, we will continue to monitor changes in market
conditions and will evolve to remain successful.
AST has, for some considerable time, been involved in the negotiations referred
to above and has already undergone much transformation. We are now in the final
phase of dealing with the issues of the past. We look forward to the
recapitalisation of the company and to the introduction of a significant BEE
shareholder.
I wish to thank our stakeholders including our clients, employees, shareholders,
our board of directors, suppliers, funders and our bankers for their continued
support and commitment.
For and on behalf of the board
John Miller
CEO AST Group
28 September 2004
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`s registered office.
Going concern
Without qualifying their opinion, they draw attention to the fact that the
comprehensive financial statements have been prepared on the going-concern
basis, based on the expectation of the successful refinancing of the group
through the proposed agreement as discussed in the above announcement.
Income statement for the year ended 30 June 2004
Audited Audited
30 June 2004 30 June 2003
(12 months) (12 months)
R`000 R`000
Revenue 1 734 652 2 205 612
Earnings before interest, tax, depreciation,
amortisation, impairment and sale of business 105 290 385
(EBITDA)
Depreciation (53 121) (60 565)
Impairment of assets and investments (27 422) (23 435)
Loss on sale of businesses (3 584) (1 372)
Profit/(loss) from operations before 21 163 (84 987)
amortisation
Amortisation of intangible assets (5 272) (2 062)
Amortisation of goodwill (96 633) (145 434)
Loss from operations (80 742) (232 483)
Net finance cost (43 567) (60 813)
Share of results of associates 326 323
Loss before tax (123 983) (292 973)
Income tax expense (9 085) 48 435
Loss from ordinary activities (133 068) (244 538)
Minority interest (7 679) 17 057
Net loss for the year (140 747) (227 481)
Net finance cost (43 567) (60 813)
Interest received 18 054 20 161
Finance costs (61 621) (80 974)
Headline loss per ordinary share (cents) (8,56) (101,49)
Fully diluted headline loss per ordinary share (8,56) (101,49)
(cents)
Basic loss per ordinary share (cents) (91,92) (370,95)
Fully diluted basic loss per ordinary share (91,92) (370,95)
(cents)
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 of shares 153 124 61 323
Fully diluted number of shares 164 849 192 657
Number of shares in issue 184 291 67 311
Reconciliation of headline loss
Net loss for the year (140 747) (227 481)
Amortisation of goodwill 96 633 145 434
Minority interest in amortisation of goodwill - (4 999)
Loss on impairment of assets and investments 27 422 23 435
Loss on sale of businesses 3 584 1 372
Headline loss (13 108) (62 239)
Balance sheet as at 30 June 2004
Audited Audited
30 June 2004 30 June 2003
R`000 R`000
Assets
Non-current assets 367 190 506 867
Property, plant and equipment 98 611 158 634
Intangible assets 36 742 147 802
Unlisted investments 10 334 19 115
Deferred tax asset 221 503 181 316
Current assets 404 877 537 279
Inventories 37 037 55 082
Trade debtors and other receivables 283 312 395 065
Current tax asset - 16 417
Cash and cash equivalents 84 528 70 715
Total assets 772 067 1 044 146
Equity and liabilities
Capital and reserves 29 348 124 231
Minority interest 14 579 9 296
Non-current liabilities 273 137 182 298
Interest-bearing borrowings 231 740 159 208
Deferred tax liability 41 397 20 068
Amounts due to vendors - 3 022
Current liabilities 455 003 728 321
Trade creditors 188 845 285 044
Provisions 71 191 67 607
Income received in advance 46 424 44 589
Short-term portion of interest-bearing 49 006 238 174
borrowings
Sundry payables (including payroll vendors and 50 288 44 240
VAT)
Bank overdrafts 46 234 34 582
Amounts due to vendors 175 14 085
Current tax liability 2 840 -
Total equity and liabilities 772 067 1 044 146
Net asset value per ordinary share (cents) 15,92 184,56
Cash flow statement for the year ended 30 June 2004
Audited Audited
30 June 2004 30 June 2003
(12 months) (12 months)
R`000 R`000
Cash flows from operating activities
Cash generated from operations 83 382 50 849
Net finance cost (43 567) (69 019)
Normal tax paid (3 400) (34 131)
Cash generated from/(used by) operating 36 415 (52 301)
activities
Cash flows from investment activities
Vendor payments for past acquisitions (10 091) (65 316)
Proceeds from the disposal of businesses 24 298 21 301
Other investment activities (1 924) 32 168
Cash generated from/(used in) investment 12 283 (11 847)
activities
Cash flows from financing activities
Proceeds from the rights issue 88 750 -
Net repayment of long-term borrowings (135 287) (11 450)
Cash used in financing activities (46 537) (11 450)
Net increase/(decrease) in cash and cash 2 161 (75 598)
equivalents
Cash and cash equivalents at the beginning of 36 133 111 731
the year
Cash and cash equivalents at the end of the 38 294 36 133
year
Statement of changes in equity for the year ended 30 June 2004
Audited Audited
30 June 2004 30 June 2003
(12 months) (12 months)
R`000 R`000
Share capital 184 67
Balance at the beginning of the year 67 58
New shares issued during the year 117 9
Share premium 343 457 236 209
Balance at the beginning of the year 236 209 207 059
Premium on new shares issued during the year 113 545 23 969
Share issue expenses written off during the (6 425) (1 553)
year
Utilisation of treasury shares during the year 128 6 734
Vendor claims 8 207 30 206
Balance at the beginning of the year 30 206 46 460
Changes in amounts due to vendors during the (21 999) (16 254)
year
Distributable reserves (275 883) (135 136)
Balance at the beginning of the year (135 136) 83 614
- as shown previously (135 136) 78 278
- adjusted for AC133 - 5 336
Net loss for the year (140 747) (227 481)
Transfer to non-distributable reserves - 8 731
Non-distributable reserves (46 617) (7 115)
Balance at the beginning of the year (7 115) 4 409
Realised profits on cash flow hedges - 5 951
Transfer from distributable reserves - (8 731)
Currency translation differences for the year (39 502) (8 744)
Balance at the end of the year 29 348 124 231
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: 47 Landmarks Avenue, Kosmosdal, Samrand, South Africa, Tel:
(012) 675-5000, 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: 29/09/2004 07:00:30 AM Produced by the JSE SENS Department
