| Wed 6 Jul 2005, 8:43 | | AST - Revised interim results for the six months e |
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AST - Revised interim results for the six months ended 31 December 2004
AST Group Limited
Registration Number 1998/021790/06
Share code: AAA
ISIN code: ZAE000049441
Revised interim results for the six months ended 31 December 2004
Renamed Gijima AST Group Limited on 22 April 2005
Share code: GIJ
ISIN: ZAE000064606
www.ast.co.za
REVISED INTERIM RESULTS TO 31 DECEMBER 2004
The company`s interim results to 31 December 2004, which were issued on 23 March
2005, are hereby withdrawn and republished. This withdrawal is at the request of
the JSE after consultation with the GAAP Monitoring Panel (`GMP`). The ruling is
of an accounting nature and relates to the classification of the R116,75 million
of debt which served to underwrite the rights offer.
The revision relates to a balance sheet classification only and has no impact on
the company`s profitability, cash flows or operations. The company believes that
the accounting treatment adopted in the previously published interim financial
statements was transparent. The company, after consultation with its advisors,
classified the R116,75 million of debt which served to underwrite the rights
offer as equity, while the JSE and GMP ruled that it should still be classified
as debt. The changes required to the results previously published are
highlighted below under the `Revised` column. The company and its advisors
respectfully disagree with the JSE and the GMP in this matter but accept and
respect their ruling.
Shareholders should bear in mind that the company completed the rights offer of
R160 million in May 2005; the R116,75 million of debt was replaced with equity;
the rights offer was 51,8% oversubscribed; the merger with Gijima`s information
technology businesses was executed, thereby completing all the actions envisaged
at the time of publication of our interim results.
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.
Income statement
for the six months ended 31 December 2004
Revised Withdrawn Reviewed Audited
31 December 31 December 31 December 30
June
2004 2004 2003 2004
(6 months) (6 months) (6 months) (12 months)
R`000 R`000 R`000 R`000
Revenue 747 055 747 055 886 036 1 734 652
Earnings before
interest, tax,
depreciation,
amortisation, 60 466 60 466 44 659 105 290
impairment and sale of
business (EBITDA)
Depreciation (21 879) (21 879) (28 175) (53 121)
Impairment of assets (83 076) (83 076) (22 589) (27 422)
and investments
Profit/(loss) on sale 875 875 (4 078) (3 584)
of businesses and
properties
Operating profit/(loss) (43 614) (43 614) (10 183) 21 163
before amortisation
Amortisation of - - (862) (5 272)
intangible assets
Impairment/amortisation (20 184) (20 184) (48 160) (96 633)
of goodwill
Operating loss (63 798) (63 798) (59 205) (80 742)
Net interest 5 094 5 094 (18 473) (43 567)
received/(finance cost)
Share of results of 89 89 56 326
associates
Loss before tax (58 615) (58 615) (77 622) (123 983)
Income tax expense (17 885) (17 885) (12 787) (9 085)
Loss from ordinary (76 500) (76 500) (90 409) (133 068)
activities
Minority interest (3 975) (3 975) (4 671) (7 679)
Net loss for the period (80 475) (80 475) (95 080) (140 747)
Net interest 5 094 5 094 (18 473) (43 567)
received/(finance cost)
Interest received 8 225 8 225 10 037 18 054
Reversal of excess 17 698 17 698 - -
provision
Finance costs (20 829) (20 829) (28 510) (61 621)
Headline 11,30 11,30 (13,23) (8,56)
earnings/(loss) per
ordinary share (cent)
Fully diluted headline 6,18 6,18 (13,23) (8,56)
earnings/(loss) per
ordinary share (cent)
Basic loss per ordinary (41,50) (41,50) (62,11) (91,92)
share (cent)
Fully diluted basic (41,50) (41,50) (62,11) (91,92)
loss per ordinary share
(cent)
Weighted average number 193 934 193 934 153 078 153 124
of shares (000`s)
Fully diluted number of 354 780 354 780 161 812 164 849
shares (000`s)
Number of shares in 198 759 198 759 184 285 184 291
issue (000`s)
Reconciliation of
headline
earnings/(loss)
Net loss for the period (80 475) (80 475) (95 080) (140 747)
Impairment/amortisation 20 184 20 184 48 160 96 633
of goodwill
Loss on impairment of 83 076 83 076 22 589 27 422
assets and investments
(Profit)/loss on sale (875) (875) 4 078 3 584
of businesses and
properties
Headline 21 910 21 910 (20 253) (13 108)
earnings/(loss)
Balance sheet as at 31 December 2004
Revised Withdrawn Reviewed Audited
31 December 31 December 31 December 30
June
2004 2004 2003 2004
R`000 R`000 R`000 R`000
Assets
Non-current assets 206 764 206 764 430 764 367 190
Property, plant and 70 053 70 053 119 542 98 611
equipment
Intangible assets 16 219 16 219 99 657 36 742
Unlisted investments 4 107 4 107 15 459 10 334
Deferred tax asset 116 385 116 385 196 106 221 503
Current assets 385 054 385 054 391 355 404 877
Inventories 29 769 29 769 44 946 37 037
Trade debtors and other 251 824 251 824 270 868 283 312
receivables
Cash and cash 103 461 103 461 75 541 84 528
equivalents
Total assets 591 818 591 818 822 119 772 067
Equity and Liabilities
Capital and reserves (64 029) 52 721 95 942 29 348
Minority interest 14 054 14 054 11 571 14 579
Loans to be converted 116 750 - - -
to equity in terms of
underwriting
Non-current liabilities 120 012 120 012 180 796 273 137
Interest-bearing 94 486 94 486 160 535 231 740
borrowings
Deferred tax liability 25 526 25 526 20 261 41 397
Current liabilities 405 031 405 031 533 810 455 003
Trade creditors 150 804 150 804 181 408 188 845
Provisions 55 007 55 007 54 346 71 191
Income received in 52 405 52 405 51 721 46 424
advance
Short-term portion of 45 888 45 888 109 633 49 006
interest-bearing
borrowings
Sundry payables 62 387 62 387 67 100 50 288
(including payroll
vendors and VAT)
Bank overdrafts 35 644 35 644 55 525 46 234
Amounts due to vendors 230 230 6 258 175
Current tax liability 2 666 2 666 7 819 2 840
Total equity and 591 818 591 818 822 119 772 067
liabilities
Net asset value per (32,21) 26,52 52,06 15,92
ordinary share (cents)
Cash flow statement for the six months ended 31 December 2004
Revised Withdrawn Reviewed Audited
31 December 31 December 31 December 30
June
2004 2004 2003 2004
(6 months) (6 months) (6 months) (12 months)
R`000 R`000 R`000 R`000
Cash flows from
operating activities
Cash generated from 38 001 38 001 10 766 89 340
operations
Net finance cost (12 604) (12 604) (18 473) (43 567)
Normal tax paid (11 082) (11 082) (8 043) (3 400)
Cash generated 14 315 14 315 (15 750) 42 373
from/(used by)
operating activities
Cash flows from
investment activities
Vendor payments for (150) (150) (2 381) (10 091)
past acquisitions
Proceeds from the - - 20 079 24 298
disposal of businesses
and properties
Other investment (8 700) (8 700) (1 627) (1 924)
activities
Cash generated from (8 850) (8 850) 16 071 12 283
investment activities
Cash flows from
financing activities
Proceeds from the - - 88 750 88 750
rights issue
Share issue expenses (1 650) (1 650) (1 699) (5 958)
Net proceeds 708 708 (103 489) (135 287)
from/(repayment of)
long-term borrowings
Cash used in financing (942) (942) (16 438) (52 495)
activities
Net increase/(decrease) 4 523 4 523 (16 117) 2 161
in cash and cash
equivalents
Cash and cash 38 294 38 294 36 133 36 133
equivalents at the
beginning of the period
Overdraft to be 25 000 25 000 - -
converted into equity
Cash and cash 67 817 67 817 20 016 38 294
equivalents at the end
of the period
Statement of changes in equity for the six months ended 31 December 2004
Revised Withdrawn Reviewed Audited
31 December 31 31 December 30 June
December
2004 2004 2003 2004
(6 months) (6 months) (6 months) (12 months)
R`000 R`000 R`000 R`000
Share capital 199 199 184 184
Balance at the 184 184 67 67
beginning of the period
New shares issued 15 15 117 117
during the period
Share premium 350 705 350 705 350 175 343 457
Balance at the 343 457 343 457 236 209 236 209
beginning of the period
Premium on new shares 8 623 8 623 120 264 113 545
issued during the
period
Share issue expenses (1 375) (1 375) (6 420) (6 425)
written off during the
period
Utilisation of treasury - - 122 128
shares during the
period
Loans to be converted - 116 750 - -
to equity in terms
of underwriting
Vendor claims - - 8 298 8 207
Balance at the 8 207 8 207 30 206 30 206
beginning of the period
Changes in amounts due (8 207) (8 207) (21 908) (21 999)
to vendors during the
period
Distributable reserves (384 198) (384 198) (230 216) (275 883)
Balance at the (275 883) (275 883) (135 136) (135 136)
beginning of the period
Net loss for the period (80 475) (80 475) (95 080) (140 747)
Transfer to non- (27 840) (27 840) - -
distributable reserves
Non-distributable (30 735) (30 735) (32 499) (46 617)
reserves
Balance at the (46 617) (46 617) (7 115) (7 115)
beginning of the period
Transfer from 27 840 27 840 - -
distributable reserves
Currency translation (11 958) (11 958) (25 384) (39 502)
differences for the
period
Balance at the end of (64 029) 52 721 95 942 29 348
the period
REVISED 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 2003/2004 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.
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 revised balance sheet does not reflect the positive impact of the
underwritten part of the rights offer as contracted at 31 December 2004. The
R116,75 million underwritten portion of the rights offer funds an equal
reduction of debt and was therefore disclosed separately in the revised 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 on 22 March 2005.
Interest-bearing liabilities reduced by R34,3 million from June 2004, excluding
the impact of the R116,75 million capitalisation of debt.
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 however not capitalised against an equal reduction of debt,
but is disclosed separately in the balance sheet as `loans to be converted to
equity in terms of underwriting`.
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!
John E Miller
Chief Executive Officer
AST Group
For and on behalf of the board
Hans J Smith
Chairman
AST Group
HJ Smith* (Chairman), RW Gumede (Deputy Chairman), JE Miller (Chief Executive
Officer), NJ Dlamini*, W Drue*, MG Erasmus (Financial Director), CJH Ferreira, M
Macdonald*, NI Mhlongo*, CME Mostert*, K Mpinga* (Democratic Republic of the
Congo), AFB Mthembu*, CJ Potgieter*, JCL van der Walt*, * Non-executive
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: 06/07/2005 07:00:20 AM
Produced by the JSE SENS Department
