Lagging operations encumber AST

Underperforming Australian and Namibian operations and costs relating to the eVentures business slowed AST Group`s earnings growth in the 2002 financial year.

Executive chairman Gerrie de Klerk says although it is still profitable, the consulting business in Australia performed significantly below expectations in the year to 30 June. The Australian head office was closed and the group incurred an additional R7 million non-recurring closure cost.

The weak performance also led to the cancellation of the acquisition of RedRock last April.

The eVentures investment was also slow in gaining customer adoption, and as a result of increasing costs, AST decided to sell, integrate or close the businesses, leading to a one-off exceptional loss of R23 million.

The Namibian subsidiary realised an after-tax loss of R12.2 million in the fourth quarter.

"Action has been taken and the Namibian executive management and board of directors have been changed," De Klerk says. "The accounting system will immediately be integrated with AST`s financial management system to prevent the recurrence of these issues and to return the business to profitability."

Basic earnings per share were affected by a significant goodwill write-off in line with a policy of writing off goodwill over the shorter of the period of the useful life or the period of the profit warranties associated with the acquisition.

"The goodwill write-off has peaked and, in the absence of further acquisitions, will reduce to below R50 million within 36 months."

De Klerk points out that market share increased and cash flows strengthened during the period.

The core businesses performed well and almost two-thirds of the revenue growth was organic, he says. Although the group is open to further market consolidation, "the capacity-building, acquisition phase is behind us. We will continue to leverage the existing capacity within the group to grow ahead of the market."

He says the group has achieved the comprehensive and diversified information communication and technology services business envisaged at its listing four years ago.

The group says although tough market conditions will probably persist, it is confident that its growth will again exceed that of the local IT market by a healthy margin. It recently signed contracts with the government and financial services sectors that will generate revenue of R350 million over the next 18 months.

Management expects margins to continue to be under pressure and is targeting a margin in excess of 9%, which is 3% below what AST achieved in 2001.

Although there will be no dividend payments for the 2002 financial year, a board committee has recommended the introduction of dividend payments subject to certain business parameters.