| Wed 23 Mar 2005, 8:09 | | AST - Reviewed interim results |
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AST - Reviewed interim results for the six months ended 31 December 2004
AST Group Limited
(Incorporated in the Republic of South Africa)
(Registration number 1998/021790/06)
Share code: AAA
ISIN: ZAE000049441
(`AST` or `the Company`)
www.ast.co.za
Reviewed interim results for the six months ended 31 December 2004
Income statement for the six months ended 31 December 2004
Reviewed Reviewed Audited
31 Dec 31 Dec 30 Jun
2004 2003 2004
(6 months) (6 months) (12 months)
R`000 R`000 R`000
Revenue 747 055 886 036 1 734 652
Earnings before interest, tax, 60 466 44 659 105 290
depreciation, amortisation, impairment
and sale of business (EBITDA)
Depreciation (21 879) (28 175) (53 121)
Impairment of assets and investments (83 076) (22 589) (27 422)
Profit/(loss) on sale of businesses 875 (4 078) (3 584)
and properties
Operating profit/(loss) before (43 614) (10 183) 21 163
amortisation
Amortisation of intangible assets - (862) (5 272)
Amortisation of goodwill (20 184) (48 160) (96 633)
Operating loss (63 798) (59 205) (80 742)
Net interest received/(finance cost) 5 094 (18 473) (43 567)
Share of results of associates 89 56 326
Loss before tax (58 615) (77 622) (123 983)
Income tax expense (17 885) (12 787) (9 085)
Loss from ordinary activities (76 500) (90 409) (133 068)
Minority interest (3 975) (4 671) (7 679)
Net loss for the period (80 475) (95 080) (140 747)
Net interest received/(finance cost) 5 094 (18 473) (43 567)
Interest received 8 225 10 037 18 054
Reversal of excess provision 17 698 - -
Finance costs (20 829) (28 510) (61 621)
Headline earnings/(loss) per ordinary 11,30 (13,23) (8,56)
share (cent)
Fully diluted headline earnings/(loss) 6,18 (13,23) (8,56)
per ordinary share (cent)
Basic loss per ordinary share (cent) (41,50) (62,11) (91,92)
Fully diluted basic loss per ordinary (41,50) (62,11) (91,92)
share (cent)
Weighted average number of shares 193 934 153 078 153 124
(000`s)
Fully diluted number of shares (000`s) 354 780 161 812 164 849
Number of shares in issue (000`s) 198 759 184 285 184 291
Reconciliation of headline
earnings/(loss)
Net loss for the period (80 475) (95 080) (140 747)
Amortisation of goodwill 20 184 48 160 96 633
Loss on impairment of assets and 83 076 22 589 27 422
investments
(Profit)/loss on sale of businesses (875) 4 078 3 584
and properties
Headline earnings/(loss) 21 910 (20 253) (13 108)
Balance sheet as at 31 December 2004
Reviewed Reviewed Audited
31 Dec 31 Dec 30 Jun
2004 2003 2004
R`000 R`000 R`000
Assets
Non-current assets 206 764 430 764 367 190
Property, plant and equipment 70 053 119 542 98 611
Intangible assets 16 219 99 657 36 742
Unlisted investments 4 107 15 459 10 334
Deferred tax asset 116 385 196 106 221 503
Current assets 385 054 391 355 404 877
Inventories 29 769 44 946 37 037
Trade debtors and other receivables 251 824 270 868 283 312
Cash and cash equivalents* 103 461 75 541 84 528
Total assets 591 818 822 119 772 067
Equity and Liabilities
Capital and reserves 52 721 95 942 29 348
Minority interest 14 054 11 571 14 579
Non-current liabilities 120 012 180 796 273 137
Interest-bearing borrowings 94 486 160 535 231 740
Deferred tax liability 25 526 20 261 41 397
Current liabilities 405 031 533 810 455 003
Trade creditors 150 804 181 408 188 845
Provisions 55 007 54 346 71 191
Income received in advance 52 405 51 721 46 424
Short-term portion of interest-bearing 45 888 109 633 49 006
borrowings
Sundry payables (including payroll 62 387 67 100 50 288
vendors and VAT)
Bank overdrafts 35 644 55 525 46 234
Amounts due to vendors 230 6 258 175
Current tax liability 2 666 7 819 2 840
Total equity and liabilities 591 818 822 119 772 067
Net asset value per ordinary share 26,52 52,06 15,92
(cents)
Cash flow statement for the six months ended 31 December 2004
Reviewed Reviewed Audited
31 Dec 31 Dec 30 Jun
2004 2003 2004
(6 months) (6 months) (12 months)
R`000 R`000 R`000
Cash flows from operating activities
Cash generated from operations 38 001 10 766 89 340
Net finance cost (12 604) (18 473) (43 567)
Normal tax paid (11 082) (8 043) (3 400)
Cash generated from/(used by) 14 315 (15 750) 42 373
operating activities
Cash flows from investment activities
Vendor payments for past acquisitions (150) (2 381) (10 091)
Proceeds from the disposal of - 20 079 24 298
businesses and properties
Other investment activities (8 700) (1 627) (1 924)
Cash (used by)/generated from (8 850) 16 071 12 283
investment activities
Cash flows from financing activities
Proceeds from the rights issue - 88 750 88 750
Share issue expenses (1 650) (1 699) (5 958)
Net proceeds from/(repayment of) long- 708 (103 489) (135 287)
term borrowings
Cash used in financing activities (942) (16 438) (52 495)
Net increase/(decrease) in cash and 4 523 (16 117) 2 161
cash equivalents
Cash and cash equivalents at the 38 294 36 133 36 133
beginning of the period
Overdraft to be converted into equity 25 000 - -
Cash and cash equivalents at the end 67 817 20 016 38 294
of the period
Statement of changes in equity for the six months ended 31 December 2004
Reviewed Reviewed Audited
31 Dec 31 Dec 30 Jun
2004 2003 2004
(6 months) (6 months) (12 months)
R`000 R`000 R`000
Share capital 199 184 184
Balance at the beginning of the period 184 67 67
New shares issued during the period 15 117 117
Share premium 350 705 350 175 343 457
Balance at the beginning of the period 343 457 236 209 236 209
Premium on new shares issued during 8 623 120 264 113 545
the period
Share issue expenses written off (1 375) (6 420) (6 425)
during the period
Utilisation of treasury shares during - 122 128
the period
Loans to be converted to equity 116 750 - -
Vendor claims - 8 298 8 207
Balance at the beginning of the period 8 207 30 206 30 206
Changes in amounts due to vendors (8 207) (21 908) (21 999)
during the period
Distributable reserves (384 198) (230 216) (275 883)
Balance at the beginning of the period (275 883) (135 136) (135 136)
Net loss for the period (80 475) (95 080) (140 747)
Transfer to non-distributable reserves (27 840) - -
Non-distributable reserves (30 735) (32 499) (46 617)
Balance at the beginning of the period (46 617) (7 115) (7 115)
Transfer from distributable reserves 27 840 - -
Currency translation differences for (11 958) (25 384) (39 502)
the period
Balance at the end of the period 52 721 95 942 29 348
CEO`s report
Introduction
During the period under review we continued to make good progress on
consolidating the benefits arising from the initiatives started with the
Business Improvement Programme (BIP) in December 2002, despite continued tough
market conditions. We have dealt with our difficult historical problems and look
forward to operating as a revitalised business.
We have delivered on the strategic imperatives communicated to the market at the
end of our 2003/4 financial year:
* Ensuring the long-term prospects of AST by concluding the Gijima
transaction will attractively and meaningfully address AST`s black economic
empowerment credentials. Gijima is a highly respected, award winning ICT
company, with a quality client base and excellent skills. The transaction,
which is highly synergistic, will be completed by early May 2005;
* Completion of the BIP to ensure cost leadership and flexibility to meet
client requirements - and implementing a Continuous Improvement Programme
(CIP) to ensure that we do not lose the benefits we`ve gained from BIP;
* Recapitalisation of the Company`s balance sheet, which will ensure improved
confidence in the stability of the company. The rights offer became
unconditional on 22 March 2005.
Operating update
Market conditions are such that clients, needing to control their own costs,
expect greater return on their ICT expenditure - and this places pressure on
both our revenue and margin. Despite this, our improved approach to servicing
and communicating with clients has paid off. We have retained all our major
clients and have gained new ones.
We have continued to build our industry specific expertise which remains a
definite competitive advantage:
- We are in the process of negotiating some mining projects beyond South
Africa`s borders, primarily with existing clients. Our policy is to work on
projects and not to build any infrastructure outside of South Africa at
this time.
- Our manufacturing clients continue to be under cost pressure. This presents
AST with various opportunities to deploy industry specific solutions
enabling the clients to improve productivity and reduce costs.
- We have expanded our presence in financial services and have increased our
services and client bases in this sector.
- We have identified attractive opportunities in the retail sector, which we
are well positioned to address.
- Our prospects in the public sector are improving, particularly on the back
of the State IT Agency`s (SITA) Seat Management Programme, where we have
been selected as the only JSE listed ICT company on the potential supplier
list in all three of the tender categories.
During the period under review:
* AST Solutions completed the integration of the former products division,
ensuring strategic and service alignment of product offerings. The
Microsoft Solutions business was realigned to form a focused business unit
which includes .net (dot net) development, Business Intelligence and
Business Solutions such as Exapta, Navision and Great Plains.
* AST Infrastructure Services focused on delivering high quality service
management as enabled by its best practices (ITIL Service Management).
Service offerings were redefined to meet market requirements and we
continue to establish credible partnerships with key technology vendors.
* The long-awaited deregulation of the telecommunications industry supports
the rationale for establishing AST Networks Division in 2001. We are now
investing to grow our market share in the sector and to take advantage of
opportunities which are emerging with deregulation.
Across the Group, we are in the process of integrating the regional offices into
the three divisions, which will enable us to provide seamless solutions
countrywide.
December 2004 marked the successful completion of the BIP. The programme
achieved the objectives set out when it was initiated. Sustainable cost savings
of R320 million on an annualised basis were achieved - this exceeds the initial
20% target against historic costs. The improved processes also resulted in an
improvement in service levels. Reporting systems have improved and these fully
support the stringent working capital management practices now in force.
We have maintained our commitment to entrenching the benefits of the BIP with
the Continuous Improvement Programme whose primary role is to ensure solid
processes and procedures and secondly addresses cost structures. Our aim is to
continue building a culture which encourages high performance and a disciplined
approach to cost.
Transformation
Our transformation strategy, which deals with empowerment at all levels of our
business, is fully aligned with the draft ICT Charter.
The merger with Gijima will address, amongst others, equity ownership, board
representation, management influence and enterprise development. The Employment
Equity Forum is now functioning well. We have instituted a threshold of 30% of
discretionary expenditure for procurement from black-owned and empowered
companies. In addition, we have established policies to ensure skills
development including e-Learning initiatives.
The proposed new entity - Gijima AST Group Limited - will have the full BEE
benefit of the Gijima shareholding in the Group, without any of the dilution
often associated with complex funding structures. Gijima`s shareholding will be
at least 32% of the merged entity.
Financial update
Revenue decreased by 11,4% on a comparable basis as a result of continued cost
pressure from our existing client base and the competitive market environment.
The EBITDA margin remained consistent at 8,1%, in line with the normalised
margin achieved in the comparable period. This is consistent with the historic
comparison between first and second half performances.
Goodwill amortisation reduced significantly and the total goodwill amount
currently on the balance sheet will be amortised to zero by 30 June 2005.
We have reversed interest provisions of R17,7 million created during 2004 which,
subsequent to the agreement with South African Revenue Service (SARS), proved to
be excessive. However, net interest paid of R12,6 million is significantly lower
than the R18,5 million net interest paid in the comparable period. This is
predominantly due to reduced interest-bearing debt following the rights issue in
October 2003.
The impairment charge of R83,1 million represents the impairment of a deferred
tax asset and follows the agreement reached to settle historic uncertainties
with SARS.
Reported headline earnings of R21,9 million represent a substantial improvement
from the headline loss of R20,3 million for the comparative period. Headline
earnings per share of 11,3 cents were achieved for the six months ended 31
December 2004. Fully diluted headline earnings per share of 6,18 cents take into
account the share dilution effect after the rights issue. (The fully diluted
number of shares of 354 780 057 shares used is calculated by adjusting for the
dilutionary impact of the difference between the 31 December 2004 closing share
price of 54 cents and the rights offer price of 35 cents. The Gijima transaction
is not dilutive).
The balance sheet reflects the positive impact of the underwritten part of the
rights offer as contracted at 31 December 2004, namely R116,75 million. The
R116,75 million portion of the rights offer funds an equal reduction of debt and
was capitalised as such in the 31 December 2004 balance sheet. These loans will
continue to bear interest until the repayment of the debt in May 2005. The
rights offer and consequential repayment of the debt became unconditional upon
on 22 March 2005.
Interest-bearing liabilities reduced by R151,0 million from June 2004, including
the impact of the R116,75 million repayment.
Critical balance sheet ratios demonstrate a significant strengthening of AST`s
financial position compared to 30 June 2004:
- The current ratio improved from 0,89 to 0,95;
- Net asset value per share increased from 15,92 cents to 26,52 cents;
- The interest-bearing debt to equity ratio reduced from 11,1 times at 30
June 2004 to 3,3 times at 31 December 2004.
The Group generated R38 million cash from operations compared to R10,8 million
for the comparative period. Included in cash and cash equivalents is cash (R72,1
million) of AST Distributed Technology Services (Pty) Limited of which the AST
Group has a 70% shareholding. The utilisation of this cash is regulated by a
shareholders agreement.
At 31 December 2004 the Group had contingent liabilities in respect of
registered performance bonds, bank, lease and other guarantees to the value of
R1,9 million (June 2004: R2,5 million).
Post-balance sheet event
On 10 March 2005 a further R43,25 million of underwriting was secured from Allan
Gray Limited, on behalf of their clients. This makes the R160 million rights
offer fully underwritten. The additional R43,25 million of cash will be
utilised for working capital purposes. The rights offer became unconditional on
22 March 2005. The contracted portion of the rights offer as at 31 December 2004
of R116,75 million was therefore capitalised against an equal reduction of debt.
Prospects
We have identified four strategic supporting pillars for the new company, which
is to be renamed Gijima AST Group Limited:
- We will leverage opportunities created by the transaction. While the
offerings of the two businesses are highly complementary, our clients are
concentrated in different segments, which will enable us to extend our
reach. The merger will create an integrated company, which is greater than
the sum of its parts.
- We will leverage the stronger balance sheet. Our improved financial health
meets the requirements of stakeholders in their decision-making for
engaging with technology partners. We now also have sufficient working
capital to support viable investments in new technology and service
offerings. This will ensure both our growth and improved client service
levels in the future.
- We will continue to become outward focused, having dealt with most of the
internal issues. The investments necessary to maintain our competitive
advantages will include focus on AST Networks to take advantage of
deregulation and other opportunities, as well as industry specific
investments in financial services, retail, government and other industries.
Across the Group we will continue to build partnerships with leading
suppliers.
- We will consolidate operating environments, where practicable, to ensure
that our integrated business is successful. The Continuous Improvement
Programme will support improving service levels as well as ongoing control
of costs. We will continue to work with existing clients to grow our
revenue together with their return on investment.
Market conditions are expected to remain difficult in the second half of the
year - competitive activity is aggressive and the strong rand continues to
impact some spending decisions. However, we have the Business Improvement
Programme behind us and this, together with the conclusion of the BEE
transaction and rights issue, positions us to be significantly better able to
deal with difficult market conditions.
I wish to thank all our stakeholders, including our clients, our funders and
bankers, shareholders and suppliers, our board of directors and employees whose
support enabled us to transform into a company which is proudly South African!
For and on behalf of the board
John E Miller
Chief Executive Officer
AST
Audit review report
PricewaterhouseCoopers Inc`s unmodified review report on the condensed interim
financial statements contained in this report is available for inspection at the
company`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*, Warren Drue*,
Charles Meintjes*, Johan Potgieter* (* Non-executive director)
Registered office:
47 Landmarks Avenue, Kosmosdal, Samrand, South Africa,
(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: 23/03/2005 07:00:18 AM
Produced by the JSE SENS Department
