| Wed 29 Sep 2004, 18:02 | | Reviewed results for the year ended 30 June 2004 |
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CSH - Reviewed results for the year ended 30 June 2004
C S COMPUTER SERVICES HOLDINGS LIMITED
Making Business Sense of IT
(Incorporated in the Republic of
South Africa)
(Registration Number 1996/015131/06)
Share code: CSH ISIN: ZAE000022034
(`CSH`)
REVIEWED RESULTS FOR THE YEAR ENDED 30 JUNE 2004
ABRIDGED GROUP INCOME STATEMENT
Restated
Reviewed Audited
30 June 30 June
2004 2003
R ` 000 R`000
Revenue 503,295 430,485
Cost of sales 420,913 294,138
Normal 375,387 294,138
Abnormal 45,526 -
Gross profit 82,382 136,347
Operating costs 129,089 136,568
Normal 116,466 136,568
Abnormal 12,623 -
Operating loss before depreciation and amortisation (46,707) (221)
Depreciation and amortisation 12,172 13,234
Operating loss before goodwill amortisation and
impairment (58,879) (13,455)
Amortisation of goodwill and impairment of
non-current assets 63,253 12,094
Loss on sale of investment in associate - 115
Share of results of associate - 415
Loss from operations (122,132) (25,249)
Net interest paid (5,534) (9,709)
Interest paid (7,263) (14,202)
Interest received 1,729 4,493
Loss before tax (127,666) (34,958)
Taxation 36,871 (9,747)
Net loss for the year (164,537) (25,211)
Minority interest 6 10
Attributable loss for the year (164,543) (25,221)
Reconciliation of headline loss
Attributable loss for the year (164,543) (25,221)
Adjusted for:
Amortisation of goodwill and impairment of
non-current assets 61,903 12,094
Loss on sale of property, plant and equipment 194 -
Loss on sale of investment in associate - 115
Headline loss (102,446) (13,012)
Weighted average number of shares in issue (thousand) 244,070 232,169
Fully diluted number of shares (thousand) 244,070 238,958
Loss per share (cents)
Basic (2003: Restated) (67,42) (10.86)
As previously stated - prior to change in accounting
policy (10.98)
Fully diluted (2003: Restated) (67.42) (10.55)
As previously stated - prior to change in accounting
policy (10.67)
Headline loss per share (cents)
Basic (2003: Restated) (41.97) (5.60)
As previously stated - prior to change in accounting
policy (5.57)
Fully diluted (2003: Restated) (41.97) (5.45)
As previously stated - prior to change in accounting
policy (5.41)
STATEMENT OF CHANGES IN EQUITY
Restated
Reviewed Audited
30 June 30 June
2004 2003
R ` 000 R ` 000
Share capital 2,427 2,417
Balance at the beginning of the year as previously
reported 2,082
Share Incentive Trust consolidation (19)
Balance at the beginning of the year as restated 2,417 2,063
New shares issued during the year - 372
Treasury shares issued / (acquired) 7 (18)
Share Incentive Trust consolidation 3 -
Share premium 111,717 111,025
Balance at the beginning of the year as previously
reported 79,861
Share Incentive Trust consolidation (1,656)
Balance at the beginning of the year as restated 111,025 78,205
Premium of new shares issued during the year - 33,294
Share Incentive Trust consolidation (233) -
Treasury shares issued / (acquired) 526 (1,327)
Gain on treasury shares realised 399 968
Share issue expenses written off - (115)
Accumulated (losses) / profits (127,779) 36,764
Balance at the beginning of the year as previously
reported 61,716
Share Incentive Trust consolidation 269
Balance at the beginning of the year as restated 36,764 61,985
Attributable loss for the year
(164,543) (25,221)
TOTAL EQUITY (13,635) 150,206
ABRIDGED GROUP BALANCE SHEET
Restated
Reviewed Audited
30 June 30 June
2004 2003
R ` 000 R ` 000
ASSETS
Non-current assets 48,540 158,068
Property, plant and equipment 26,247 41,271
Deferred tax assets - 31,867
Intangible assets 22,293 80,887
Other investments - 1,350
Long-term contracts - 1,923
Loans - 770
Current assets 81,676 159,959
Trade receivables 54,872 96,192
Other receivables and prepayments 9,297 6,519
Tax assets 944 768
Inventory 7,822 10,241
Work-in-progress 4,501 19,614
Bank balances and cash 4,240 26,625
TOTAL ASSETS 130,216 318,027
EQUITY AND LIABILITIES
Share capital and premium 114,144 113,442
Accumulated (losses) / profits (127,779) 36,764
Ordinary shareholders` (deficit) / interest (13,635) 150,206
Minority interest 11 5
Non-current liabilities 3,930 5,506
Interest-bearing borrowings 1,950 3,878
Deferred tax liability 1,980 -
Amounts due to vendors - 1,628
Current liabilities 139,910 162,310
Trade and other payables 93,280 90,141
Tax liabilities 5,042 4,028
Short-term portion of interest-bearing borrowings 4,223 3,062
Short-term loans - 13,460
Deferred revenue 10,661 6,743
Short-term portion of amounts due to vendors 4,855 13,166
Bank overdraft 21,849 31,710
TOTAL EQUITY AND LIABILITIES 130,216 318,027
Number of shares issued (thousand) 242,838 241,827
Net tangible asset value per share (cents) (14.80) 28.66
Net asset value per share (cents) (5.61) 62.11
ABRIDGED GROUP CASH FLOW STATEMENT
Restated
Reviewed Audited
30 June 30 June
2004 2003
R ` 000 R ` 000
Cash inflow / (outflow) from operating activities 26,152 (15,761)
Cash (utilised in) / generated from operations (24,540) 2,163
Movement in working capital 58,417 (8,093)
Net interest paid (5,534) (9,709)
Tax paid (2,191) (122)
Cash outflow from investing activities (24,448) (24,819)
Net investment in property, plant and equipment (9,048) (14,412)
Acquisition of subsidiaries (5,868) (3,585)
Payments to vendors (11,198) (5,580)
Treasury shares purchased - (1,036)
Development costs capitalised (875) (2,343)
Other 2,541 2,137
Cash (outflow) / inflow from financing activities (14,228) 24,258
Proceeds from shares issued - 16,885
(Decrease) / increase in interest-bearing borrowings (768) 1,413
(Decrease) / increase in short-term loans (13,460) 5,960
Net decrease in cash and cash equivalents (12,524) (16,322)
Cash and cash equivalents at the beginning of the year (5,085) 11,237
Cash and cash equivalents at the end of the year (17,609) (5,085)
Cash flow from operating activities per share - Basic
(cents) 10.71 (6.79)
- Fully diluted (cents) 10.71 (6.60)
INTRODUCTION
The directors of CS Holdings herewith announce the Group`s reviewed results for
the year ended 30 June 2004. The Group has experienced a number of incidents
that have led to ongoing negative publicity and speculation, which has created
a difficult environment in which to operate and the results for the year should
be seen in this context.
In summary, the run of unfortunate events include:
11 Feb 2004 CS Holdings posts results showing a general upward trend.
16 Feb 2004 Reunert and Worldwide Africa Investment Holdings begin an
investigation into EDD transaction.
24 Feb 2004 Investigation concluded - CS Holdings cleared of fraud, however
findings reveal an error of judgement regarding non-disclosure.
24 Feb 2004 CEO Annette van der Laan resigns.
23 Apr 2004 Reunert considers buying out minority investors and delisting the
company.
28 Apr 2004 Trading update issued advising that earnings and NAV will be
substantially lower than the prior period.
18 May 2004 EOH emerges as new suitor.
18 May 2004 Reunert announced that it would not pursue a bid.
20 May 2004 Potential UCS purchase.
2 Jun 2004 Withdrawal of UCS offer.
14 July 2004 JSE & GMP findings on the accounting treatment of EDD transaction
finalised.
In addition to these issues the following positive events have occurred:
17 Jun 2004 BTG named as preferred bidder.
16 Aug 2004 BTG indicates a firm intention to make an offer @ 15c per CS
Holdings
share.
27 Aug 2004 Fulfilment of pre - condition for BTG offer.
3 Sep 2004 Undertakings given by in excess of 86% of CS Holdings shareholders
to
accept BTG offer.
As a consequence of the issues mentioned above, a great deal of uncertainty has
surrounded the business operations in the final 6 months of the financial year
and has negatively affected the ability to win new business. The future of the
business has only become clear with the latest announcements of the BTG
intention to make an offer. The conclusion of that intention to make an offer
is now subject to the approval of the Competition Commission. It is anticipated
that the circular containing the offer will be mailed to shareholders on or
around 4 October 2004.
The results reflect a prudent approach as demanded by the uncertain environment
and difficult trading conditions which the Group is encountering. This has
resulted in a number of provisions, write offs and asset impairments being
accounted for in the period under review, which means the Group now shows a
technically insolvent position.
PROSPECTS
It is clear from the results and financial position of the Group that the
Group`s future is dependent upon stability and certainty returning to the
Group. The Group is dependent upon the ongoing support of its bankers and this
would not be possible in an independent scenario, without the backing of a
`white knight`. Due to the nature of the Group`s business and CS Holdings`
perceived instability, the future prospects and growth of the Group are
dependent on the BTG intention to make an offer being successfully concluded.
The board`s view is that the offer will be successful.
FINANCIAL PERFORMANCE
The company issued a trading update on 28 April 2004 in which shareholders were
informed that the Group`s performance for the financial year would be
substantially lower than the corresponding period of the prior year. CS
Holdings posted a headline loss of R102,4 million (2003: headline loss of R13,0
million) and a headline loss per share of 42,0 cents (2003: headline loss per
share of 5.6 cents) for the year under review.
The main reasons for the headline loss in the year under review are the write
off of the deferred tax asset in respect of the accumulated tax losses and the
following additional costs, which are unusual in nature, amount or timing:
Rm
Impairment of and provision for obsolete back-up inventory 17,1
Work in progress write offs 15,7
Restructuring and rationalisation costs and claims 14,6
Leave pay provision 4,3
Onerous lease provisions 4,2
Audit and other professional fees 2,2
Total abnormal items 58,1
These abnormal items impact the following income statement lines:
Rm
Cost of Sales 45,5
Operating Costs 12,6
Total abnormal items 58,1
The major items are as follows:
* The impairment of and provision for obsolete back-up inventory relates to
depreciating the inventory over the remaining life of the service level
agreement (SLA) for which the inventory is held, rather than the six year write
off period previously used.
In addition, a more rigorous process has been put in place to identify and
provide for obsolete inventory relating to lost and terminating contracts.
* The work in progress write off relates in the main to the work in progress
brought forward from last year for costs incurred in winning major projects,
that at that time had not been completed or started. These projects have
largely been completed during the year. The status of the Systems Integration
business in the current environment has meant that no new major projects have
been won or are close to having been won.
* The restructuring and rationalisation costs relate to the restructuring of
both the Group Business Development resource pool and the restructuring related
to the acquisition of the ITCS business unit from First National Bank Ltd. In
addition, provisions and accruals have been made for known claims.
TAXATION
The taxation charge for the year has been impacted by the reversal of the
deferred tax assets given the uncertainty surrounding the future of the
business.
A contingent liability exists for capital gains tax on the future repayment of
equity loans acquired at a discount through the acquisition of subsidiaries in
2002 and 2003. The book value of the loans in question is R78m, and the
liability would only arise if the loans were repaid. The Group has no intention
of repaying these loans, which are regarded as part of the equity capital of
the subsidiaries concerned and in such circumstances no capital gains tax
exposure arises.
BALANCE SHEET
The net asset value of the Group has been severely impacted as a result of the
current environment within which the business is operating and the prudent view
taken on the provisioning and impairment exercise undertaken. The ongoing
status of the business is supported only by the intended BTG offer.
Trade receivables are pledged as security for the bank borrowings.
The Group is in breach of certain conditions of its banking facilities, but CS
Holdings` bankers have confirmed that they do not intend to withdraw the
existing facilities at this stage in view of the BTG acquisition, but reserve
their right to review this position on an ongoing basis.
CASH FLOW STATEMENT
Cash generated from operations as a percentage of EBITDA has remained strong
throughout the year as a result of the concerted effort to improve working
capital management.
INVESTMENT ACTIVITIES
2004 2003
Investment activities during the year relate to: Rm Rm
Investment in capital base and infrastructure 9,9 16,7
Acquisition of subsidiaries 5,9 3,6
Payments to vendors for past acquisitions 11,2 5,6
(2,5) (1,1)
Other Items 24,5 24,8
SEGMENT REPORTING
R`000 CS Systems CS IT CS Education Total
Integration Solutions Solutions
Revenue 122,810 307,473 73,012 503,295
Loss from operations
after amortisation
of goodwill and
impairment of
non-current assets (68,938) (52,997) (197) (122,132)
DIVIDENDS
The current policy is not to pay dividends, and all retained earnings are used
to fund growth. The directors will periodically review this policy.
ACCOUNTING POLICIES
These financial statements are prepared on a historical cost basis, as modified
by the revaluation of financial instruments, in accordance with the South
African Statements of Generally Accepted Accounting Practice applicable to
Interim Financial Reporting, and incorporate the accounting policies of the
Group - which are consistent in all material respects with those adopted in the
previous financial year, except as indicated below.
CHANGE IN ACCOUNTING POLICY
The Group changed its accounting policy during the year with respect to the
consolidation of the Share Incentive Trust. The comparatives have been adjusted
to take into account the requirements of the directive issued by the JSE
Securities Exchange South Africa, to consolidate the company`s Share Incentive
Trust for the first time in 2004.
The change in accounting policy had the following effect on the financial
statements:
Reversal of impairment charge on Share Trust loan - income
statement 2004 : R1,0 million
Reversal of impairment charge on Share Trust loan - income
statement 2003 : R0,4 million
Credit opening accumulated profits 2003 : R0,3 million
REVIEWED RESULTS
Deloitte & Touche has provided a modified review report on the 30 June 2004
abridged financial statements. The review report is available for inspection at
the company`s registered office. The auditor`s review report has been modified
and contains, inter alia, wording as follows:
`Without the opinion being qualified, attention is drawn to the following:
The Group`s liabilities exceed its assets by R13.1 million and the Group has
recorded a loss of R164 million for the year ended 30 June 2004. The Group is
continuing to experience cash flow difficulties and is dependant on the ongoing
support of its bankers. The directors are involved in negotiations with Bytes
Technology Group Limited whereby the latter has stated its intention to make a
firm conditional offer to the shareholders of CS Computer Services Holdings
Limited to purchase the entire issued share capital of CS Computer Services
Holdings Limited. The offer is subject to certain conditions and the provisions
of the Securities Regulation Code on Take-Overs and Mergers. Accordingly, the
ability of the Group to continue as a going concern is dependant on these future
events and we drawn attention to the commentary made by the directors in this
announcement.`
On behalf of the Board of Directors:
Dave Vink Paul Reeves
Chief Executive Officer (Acting) Chief Financial Officer
September 2004
Midrand
Registered Office
CS Holdings Office
241 Third Road
Halfway Gardens
Midrand
Transfer Secretaries
Compushare Investor Services 2004 (Pty) Limited
70 Marshall Street
Johannesburg
Board of Directors Company Secretary
TH Zuma* (Chairman) JG Goosen
DL Vink (Acting CEO) Reg no. 1996/015131/06
L Nyhonyha* Incorporated in the Republic of South Africa
S Segooa (Alt)* Share Code: CSH and ISIN Code: ZAE000022034
MP Nyama
PN Reeves
AJ Holden
* Non-executive
This financial report can also be viewed at www.cs.co.za
Making Business sense of IT
Date: 29/09/2004 05:26:39 PM Produced by the JSE SENS Department
