AST grows despite corporate spending slowdown

By Iain Scott, ITWeb group consulting editor

Johannesburg, 14 Aug 2001

JSE-listed AST Group increased its headline earnings per share by 37% in the year to 30 June.

The information and communication technology group achieved a 47% increase in revenue over the previous year, of which 40% is organic. Organic revenue growth has exceeded 40% a year for the past three years.

The operating margin improved from 11.5% to 12.1%.

Despite spending more than a R120 million for acquisitions, cash on hand at the end of the year was R161 million. AST`s cash conversion rate remains above 94%.

Executive chairman Gerrie de Klerk says the group used cash, where possible, to fund the acquisitions because using scrip at current levels was deemed to be too expensive and not in shareholders` interest.

The share, which rose 5c to close at 250c before the release of the results yesterday, was trading another 2c higher at 252c in early trade today.

De Klerk says that the group is pleased with its performance, particularly in view of a slowdown in corporate spending and the resulting poor sentiment towards information and communication technology in general.

"In addition, the structure of the group has begun to deliver solid cross-selling opportunities, and recognition of the AST Group brand is increasing," he adds.

"The infrastructure service divisions of the business have achieved critical mass, enabling additional revenues from new contracts to be incrementally profitable, due to economies of scale.

"This enables us to provide benefits to our clients in the form of lower total cost and increased efficiencies."

De Klerk says that international expansion remains important for the group, both to capitalise on opportunities arising as clients expand globally and to diversify the revenue base.

"Our strategy remains focused on the expansion in the Australian region, with any activities in Europe remaining, for now, opportunistic."

Commenting on the group`s prospects, De Klerk says the group experienced some weakness in demand from November last year to February this year.

"However, April was a record month, May was even stronger, and June 2001 provided our best results to date.

"With our revenue model, characterised by annuity revenue exceeding 50%, we are well hedged against economic downturn.

"At the same time, our exposure to the more discretionary elements of technology spend presents us with a good opportunity to increase the revenue base when the economy improves."

He adds that the Australian expansion is high on the list of priorities. "It is AST`s objective to complete the major elements in the realisation of this strategy in the coming year and to then turn our attention to Europe."

AST announced in June that Iscor was to sell its 30% stake in the group. The sale was to take place in an "orderly" fashion.

De Klerk says Iscor still contributes 20% of AST`s revenue, and despite the sale of the stake, Iscor Steel and Kumba Resources representatives will remain on the AST board.