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Unaudited Condensed Consolidated Interim Results For The Period Ended 30 September 2018
CSG HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2006/011359/06)
JSE code: CSG
ISIN: ZAE000184438
("CSG" or "the Company" or "the Group")
Unaudited condensed consolidated interim results
for the period ended 30 September 2018
Financial performance
CSG is a multi-support services group offering a wide range of services,
including facilities management, security and risk solutions, and staffing
solutions in Southern Africa, to an array of mostly blue-chip clients.
CSG's mission remains to become a leading, strategic, outsourced partner of
choice for facility management, security and risk solutions, and staffing
solutions in Southern Africa. The Company continued to consolidate the basket
of services offered to clients in these divisions for the period ended
30 September 2018. The strategic focus remains to expand into service delivery
businesses that are more technology based, with a higher barrier to entry than
the existing services, but being not too capital intensive.
CSG used the first six months to further consolidate and integrate the
acquisitions made during the 2018 financial year building a strong base from
which all three divisions could be taken to the next level. In order to
expand the service basket, CSG investigated and implemented greenfield
projects, the benefit of which will only be realised at a later stage.
The CSG Holdings Group realised an 8% increase in revenue, however, both
operating profit and headline earnings decreased by 16% and 18% respectively
for the six months ended 30 September 2018. EBITDA decreased by 14% to
R80,90 million. The various reasons for the decline in performance across the
Group's three divisions are explained in more detail under the divisional review.
Earnings per share and headline earnings per share decreased by 18% and 19%
respectively compared to the previous year. This was due to the overall decline
in performance and diluted further by the issue of shares during the period
(see note 4.2).
Divisional review
Facility Management Division
Revenue rose by 14% to R411,13 million contributing R39,57 million (representing
47%) to the operating profit of the Group. The increase is due to a combination
of organic growth, inclusion of an additional month of results for Industroserve
and the improved performance of Significant Site Services ("SSS") delivering
profits at a much higher margin.
Security and Risk Solutions Division
Revenue of R233,98 million, showed an improvement of 19% compared to the same
period last year, and contributed R15,75 million (representing 19%) to the
operating profit of the Group. The increase in revenue is as a result of the
security acquisitions made in previous years, however, operating profits were
negatively impacted due to the reduced number of technical deals realised at a
higher margin, when compared to the previous period. Consumer spending and the
increase in fuel prices had a significant impact in this sector. The set-up
costs and initial operational losses by the newly created centralised security
services company and centralised control room in Pretoria contributed further
to the decrease in operating profit, however, synergies is expected in the
longer term due to the additional capacity created. CSG expects to start to
realise the benefit of these in the second half of the year.
Staffing Solutions Division
Revenue decreased by 1% to R486,46 million contributing R28,42 million
(representing 34%) to the operating profit of the Group. The decrease can be
attributed to a number of factors, such as the Medupi project coming to an end
earlier than expected, the change in leadership structures at ConinghamLee and
the establishment of a Gauteng office that had a temporary negative impact on
their performance as well as the inclusion of CSG Skills Institute, a greenfields
project specifically set up to assist with group B-BBEE and employment equity
compliance.
Outlook
The current business environment and trading conditions are expected to remain
tough. CSG's diversification strategy has been successful and with the creation
of centralised services within the security division, the Group is well
positioned with a strong foundation of diverse services covering various
industries. Security remains an important aspect in all walks of life and
we expect to sign more technical security contracts (using both the human
element and technology) in the near to medium term which will improve the
outlook for this division. The recent appointment of a group business
development manager to focus on potential blue-chip clients and further unlock
synergies in the group should also bear fruit. We anticipate that overall
organic growth is still possible from this solid base and current economic
conditions should provide opportunities for further lucrative earnings
accretive acquisitions at very attractive multiples.
The Facilities Management division has a promising sales pipeline and is
investigating various innovative projects which should improve its financial
performance in the near future. The Staffing Solutions division continues to
diversify away from the traditional labour broking businesses into businesses
focussing more on employee related services.
Condensed consolidated statement of financial position
Unaudited Unaudited Audited
30 September 30 September 31 March
2018 2017 2018
Notes R'000 R'000 R'000
Assets
Non-current assets 602 191 576 575 596 017
Property, plant and equipment 74 255 71 545 82 780
Intangible assets 124 560 123 145 126 234
Goodwill 7 343 903 335 515 342 772
Deferred taxation 6 590 9 683 5 515
Other financial assets 52 883 36 686 38 716
Current assets 493 969 440 543 421 265
Inventories 10 145 10 338 12 298
Current income tax receivable 3 214 1 034 4 370
Current portion of other financial
assets 9 622 4 574 8 889
Trade and other receivables 437 542 388 383 342 174
Bank and call deposits 33 446 35 908 53 534
Total assets 1 096 160 1 017 118 1 017 282
Equity and liabilities
Capital and reserves 671 086 584 864 641 457
Stated capital 4.1 312 872 311 770 311 770
Vendor shares 4.3 6 011 - -
Treasury shares 4.2 (824) (1 033) (824)
Share based payment reserve - 26 53
Retained earnings 349 268 273 109 327 197
Foreign currency translation reserve (11 416) (12 273) (12 531)
Non-controlling interest 15 175 13 264 15 792
Non-current liabilities 163 485 164 000 149 204
Interest-bearing liabilities 136 658 135 107 122 186
Deferred taxation 26 827 28 892 27 018
Current liabilities 261 589 268 254 226 621
Current portion of interest
bearing liabilities 32 980 46 972 54 032
Current portion of loans from
related parties 16 286 2 916 -
Bank overdrafts and invoice
discounting 31 104 21 625 12 386
Trade and other payables 174 045 189 574 155 309
Trade payables and accruals 168 760 176 297 144 457
Current portion of contingent
consideration 3 5 285 13 277 10 852
Current income tax payable 7 174 7 167 4 894
Total equity and liabilities 1 096 160 1 017 118 1 017 282
Shares in issue ('000) 516 463 515 150 515 150
Net asset value per share (cents) 127,0 111,0 121,5
Net tangible asset value per
share (cents) 39,0 21,9 33,2
Condensed consolidated statement of profit and loss and other comprehensive
income
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
30 September 30 September 31 March
2018 2017 2018
Notes R'000 R'000 R'000
Revenue 1 131 571 1 050 317 2 134 598
Cost of sales (898 510) (814 299) (1 660 087)
Gross profit 233 061 236 018 474 511
Net operating expenses (161 846) (151 589) (308 153)
Operating profit 71 215 84 429 166 358
Profit on sale of property,
plant and equipment 489 114 (85)
Remeasurement of contingent
consideration relating to
business acquisition 3 (1 304) - 808
Investment income 3 898 3 232 5 962
Finance cost (10 182) (10 252) (21 102)
Profit before taxation 64 116 77 523 151 941
Taxation (14 419) (17 969) (35 770)
Profit for the period 49 697 59 554 116 171
Other comprehensive income 1 114 1 547 1 289
Total comprehensive income 50 811 61 101 117 460
Profit for the period attributable to:
Owners of the parent 47 695 57 455 111 545
Non-controlling interest 2 002 2 099 4 626
49 697 59 554 116 171
Total comprehensive income
attributable to:
Owners of the parent 48 809 59 002 112 834
Non-controlling interest 2 002 2 099 4 626
50 811 61 101 117 460
Weighted average shares in
issue ('000) 515 085 507 105 510 858
Diluted weighted average
shares in issue ('000) 515 085 507 761 511 514
Earnings per share
Basic earnings per share (cents) 9,26 11,33 21,83
Diluted earnings per share (cents) 9,26 11,32 21,81
Dividend per share (cents) - - 5,00
Headline earnings reconciliation
Attributable earnings 47 694 57 455 111 545
(Profit)/loss on sale of property,
plant and equipment (489) (114) 85
Impairment on property, plant
and equipment - 288 -
Taxation 137 32 (24)
Headline earnings 47 343 57 661 111 606
Headline earnings per share
Basic headline earnings per
share (cents) 9,19 11,37 21,85
Diluted headline earnings per
share (cents) 9,19 11,36 21,82
Condensed consolidated statement of cash flows
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
30 September 30 September 31 March
2018 2017 2018
Notes R'000 R'000 R'000
Cash flow from operations (3 006) 52 325 139 759
Cash generated by operations 13 509 73 728 186 525
Investment income 5 915 1 270 4 030
Finance cost (10 182) (10 252) (18 533)
Taxation paid (12 248) (12 421) (32 263)
Cash flow from investing activities (1 396) (126 160) (169 743)
Net investment in property,
plant and equipment (243) (17 687) (49 497)
Net investment in intangible
assets - 189 238
Business combination
transaction costs - - -
Acquisition of subsidiaries 7 (1 153) (108 662) (120 484)
Cash flow from financing
activities (34 404) 66 226 49 240
Dividends paid (28 294) (31 171) (31 171)
Net purchase of treasury
shares 4.1 - 214 422
Cash purchase consideration - - -
made relating to Ukweza acquisition
Issue of ordinary shares 4.2 1 102 1 102 1 102
Movement in interest-bearing
liabilities and other
financial assets (7 212) 96 080 78 887
(Decrease)/increase in cash
resources (38 806) (7 609) 19 256
Cash resources at beginning of
period 41 148 21 892 21 892
Cash resources at end of period 2 342 14 283 41 148
Cash resources 2 342 14 283 41 148
Bank and call deposits 33 446 35 908 53 534
Bank overdraft and invoice
discounting (31 104) (21 625) (12 386)
Condensed consolidated statement of changes in equity
Total
attributable
to equity Non-
holders of controlling Total
the parent interest equity
Notes R'000 R'000 R'000
Equity at 1 April 2017 (Audited) 511 817 16 265 528 082
Total comprehensive income for
the period 59 002 2 099 61 101
Dividend paid (25 692) (5 479) (31 171)
Acquisition of shares from
non-controlling interest (880) 380 (500)
Share based payment reserve 26 - 26
Treasury shares 214 - 214
Ordinary shares issued 27 112 - 27 113
Equity at 30 September 2017
(Unaudited) 571 600 13 264 584 864
Total comprehensive income for
the period 53 832 2 527 56 359
Share based payment reserve 27 - 27
Treasury shares 4.1 208 - 208
Equity at 31 March 2018 (Audited) 625 665 15 792 641 457
Total comprehensive income for
the period 48 809 2 002 50 811
Dividend paid (25 758) (2 536) (28 294)
Sale of shares to non-
controlling interest 81 (81) -
Ordinary shares issued 4.2 1 102 - 1 102
Vendor shares to be issued 4.3 6 011 - 6 011
Equity at 30 September 2018
(Unaudited) 655 910 15 175 671 086
Segment reporting
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
30 September 30 September 31 March
2018 2017 2018
Notes R'000 R'000 R'000
Revenue
Facility management 411 134 361 576 756 743
Security and risk solutions 233 981 196 407 425 982
Staffing solutions 486 456 492 334 951 873
Total Group 1 131 571 1 050 317 2 134 597
Operating profit 71 215 84 429 166 358
Facility management 39 572 30 675 69 216
Security and risk solutions 15 747 23 062 43 123
Staffing solutions 28 419 41 627 74 869
Head office (12 523) (10 935) (20 850)
Earnings before interest, tax,
depreciation and amortisation
("EBITDA") 80 898 93 728 186 954
Facility management 41 864 33 592 81 614
Security and risk solutions 21 960 28 124 48 414
Staffing solutions 29 679 42 894 77 665
Head office (12 605) (10 882) (20 739)
Profit before taxation 64 116 77 523 151 941
Facility management 39 419 30 330 75 398
Security and risk solutions 14 323 22 646 35 488
Staffing solutions 27 726 39 508 71 310
Head office (17 352) (14 961) (30 255)
Notes to the condensed consolidated financial results
1. Nature of operations
CSG is a holding company incorporated and domiciled in South Africa. The main
business is to provide facilities management which includes contract catering,
cleaning and food services, security and risk solutions, as well as outsourced
personnel services, including recruitment and specialised staffing solutions to
a range of clients.
2. Basis of preparation
These condensed consolidated interim results for the period ended 30 September
2018 have been prepared in accordance with the framework concepts and the
measurement and recognition requirements of International Financial Reporting
Standards ("IFRS"), the information required by IAS 34 - Interim Financial
Reporting, the SAICA Financial Reporting Guides as issued by the Accounting
Practices Committee and Financial Reporting Pronouncements as issued by the
Financial Reporting Standards Council, the requirements of the South African
Companies Act no 71 of 2008, and the JSE Limited Listings Requirements.
The results have been prepared in accordance with the accounting policies of the
Company that are in terms of IFRS and that are consistent with the accounting
policies of the previous annual financial statements other than the adoption of
both IFRS 15 and IFRS 9 during the current financial year. These results were
prepared under the supervision of the Group Chief Financial Officer,
Mr WE Scott CA(SA).
The condensed consolidated interim financial results have not been reviewed or
reported on by the Group's auditor.
3. Contingent consideration
Contingent considerations for both Golden Dividend 402 Proprietary Limited,
trading as Industroserve ("Industroserve"), and Siyaya Hygiene and Cleaning
Skills Institute Proprietary Limited ("CSG Skills Institute") acquisitions
(see note 7) were settled during the period. These adjustments were accounted
for as fair value adjustments (Level 3) on the statement of profit and loss
and other comprehensive income, and calculations were based on year-to-date
actual results. The outstanding contingent considerations relate to Intercity
Alarms and Security Systems Proprietary Limited which have not been paid and
no additional amount was raised, as the current estimate is deemed reasonable
as at 30 September 2018 and an additional amount of R205 000 was raised
relating to Pinnacle Risk Management CC ("Pinnacle"). All conditions have
been met on the amount and it is expected to be paid in November 2018.
4. Ordinary shares
4.1 Treasury shares
Treasury shares relate to the purchase of shares by the CSG Share Incentive
Trust ("Trust") to fulfil its obligation in terms of share option schemes.
4.2 Ordinary shares issued
During August 2018, an additional 1 312 502 shares were issued to
predetermined participants resulting from an exercise of options pursuant
to a specific issue of options by CSG.
4.3 Vendor shares to be issued
Shares due to the previous owners of White River Hi-Tech Security Services
Proprietary Limited ("Hi-Tech White River") and Industroserve, as part of
the final purchase price, have been accounted for as vendor shares as at
30 September 2018 (note 7). The Hi-Tech White River shares were issued on
12 November 2018 and the Industroserve shares on 19 November 2018.
5. Capital commitments and contingencies
The Group had no significant outstanding capital commitments or contingencies
as at 30 September 2018.
6. Sale of 4% interest in phakamani solutions proprietary limited On
4 May 2018, CSG, via its wholly-owned subsidiary CSG Food Solutions
Proprietary Limited (previously Ukweza Holdings Proprietary Limited) sold
4% of its investment in Phakamani Solutions Proprietary Limited to the
non-controlling shareholder. The sale has not resulted in a change of control
and, as such, the full 4% of net asset value has been accounted for against
retained earnings.
7. Business combinations
7.1 White River Hi-Tech Security Services Proprietary Limited
On 1 November 2015, the Group acquired 100% of the issued ordinary share
capital of Hi-Tech White River, thereby obtaining control. Hi-Tech White River
is incorporated in South Africa and is a well-known armed response company in
the White River and Hazyview area. The company is included in the Security and
Risk Solutions division.
The purchase consideration was payable based on the financial performance of
Hi-Tech White River for the twelve month period immediately following the
first twelve months after acquisition date. Based on the projected profits for
the performance guarantee period, an accrual was raised. For the 2019 financial
year, the final purchase consideration for Hi-Tech White River has been
calculated as R7,01 million. Of this, R4 million was settled in cash before
March 2018. An additional payment of R455 000 was paid subsequent to the 2018
year-end and the remainder will be settled in CSG shares. A total of 2 146 579
shares will be issued at a volume- weighted average price ("VWAP") of R1,14 and
these have been accounted for as vendor shares as at 30 September 2018. The
difference between the accrual and the final purchase price was accounted for
as a re-measurement in the statement of profit and loss and other comprehensive
income.
7.2 Golden Dividend 402 Proprietary Limited T/A Industroserve
CSG acquired 100% of the issued shares in Industroserve, a cleaning company,
with effect from 1 May 2017 for a maximum amount of R22,5 million. The company
is included in the Facilities Management division and was acquired to expand
the current footprint and to boost the commercial cleaning component of this
division.
The purchase consideration was payable based on the financial performance of
Industroserve for the twelve month period immediately preceding the effective
date. Based on the projected profits for the performance guarantee period,
an accrual was raised.
For the 2019 financial year, the final purchase consideration for Industroserve
has been calculated as R12,62 million. Of this, R7,5 million was settled in
cash before year-end. An additional cash payment of R1,56 million was paid
subsequent to the 2018 year-end and the remainder will be settled in CSG shares.
A total of 2 679 331 shares will be issued at a VWAP of R1,33 and these have
been accounted for as vendor shares as at 30 September 2018. The difference
between the accrual and the final purchase price was accounted for as a
remeasurement in the statement of profit and loss and other comprehensive
income.
7.3 CSG Skills Institute Proprietary Limited (previously known as Siyaya Skills
Institute) CSG acquired 100% of the issued shares in CSG Skills Institute, a
training company, together with the shareholder's loan account held by the
previous shareholder, with effect from 1 June 2017 for a maximum amount of
R5,25 million. The company is included in the Staffing Solutions division
and was acquired primarily to gain access to its customer list.
The purchase consideration was payable based on the financial performance
of CSG Skills Institute for the twelve month period immediately preceding
the effective date. Based on the projected profits for the performance
guarantee period, an accrual was raised.
For the 2019 financial year, the final purchase consideration for CSG Skills
Institute has been calculated as R4,4 million. Of this, R3 million was
settled in cash before year-end. An additional cash payment of R1,4 million
was paid subsequent to the 2018 year-end. The difference between the accrual
and the final purchase price was accounted for as a re-measurement in the
statement of profit and loss and other comprehensive income.
7.4 SOS Protec Secure CC
On 22 May 2018, CSG signed an agreement with SOS Protec Secure CC, in terms
of which it agreed with 7Arrows Security Proprietary Limited to sell to each
other a portion of their respective businesses at a price earnings multiple
of 18 times the revenue attributable to the contracts.
The effective date was 1 June 2018.
The transaction will be accounted for in terms of IFRS3 Business Combinations
and a full purchase price allocation will be performed within twelve months,
as allowed by this standard.
Due to the fact that the release of the interim results is so close to the
effective date, it is not possible to make the required IFRS3 disclosures,
as the initial accounting is still incomplete.
7.5 Pinnacle Risk Management CC
On 22 February 2018, Revert Risk Management Solutions Proprietary Limited
("Revert"), a wholly-owned subsidiary of CSG, acquired 100% of the issued
shares in Pinnacle Risk Management CC ("Pinnacle"), with effect from
1 April 2018 for a maximum amount of R1,47 million. An initial amount of
R1,26 million was paid in cash, while the balance will be settled in cash
once all the suspensive conditions relating to the contract
have been met.
The effective date was 1 April 2018.
The transaction will be accounted for in terms of IFRS3 Business
Combinations and a full purchase price allocation will be performed
within twelve months as allowed by this standard.
Due to the fact that the release of the interim results is so close to
the effective date, it is not possible to make the full IFRS3 disclosures.
As the initial accounting is still incomplete, the full excess over purchase
price has provisionally been allocated
to goodwill.
The information provided below is based on provisional results on the entity
as at 28 February 2018.
As at
28 February
2018
R'000
Recognised amounts of identifiable net assets
Non-current assets 55
Property, plant and equipment 55
Current assets 279
Trade and other receivables 172
Cash and cash equivalents 107
Identifiable net assets 334
Goodwill on acquisition 1 131
Purchase consideration* 1 465
Cash flow information
Bank balance acquired 107
* Based on the projected profits for the performance guarantee period, an
accrual for the contingent consideration has been taken into account in
calculating goodwill on date of acquisition. This is based on a Level 3 in
the fair value hierarchy.
Since the acquisition date, Pinnacle has contributed R6,5 million to Group
revenue and R955 463 to Group profit.
8. Events after the reporting period
The directors are not aware of any material events that occurred after the
reporting date and up to the date of this report.
9. Changes in directors
Mr AF Volkwyn stepped down as a non-executive director of the company with
effect from 4 July 2018 due to medical reasons. He was replaced by
Mr N Ramages.
10. Going concern
The financial information has been prepared on a going concern basis.
For and on behalf of the Board
BT Ngcuka PJJ Dry
Chairman Chief Executive Officer
22 November 2018
Directors
BT Ngcuka* (Chairman); PJJ Dry (CEO); JG Nieuwoudt (COO); WE Scott (CFO);
NN Sonjani*#; R Kisten*#; AF Volkwyn* (resigned 4 July 2018); M Mokoka*#;
N Ramages* (appointed 4 July 2018)
(* non-executive) (# independent)
Secretary and registered office
MN Hattingh, 6 Topaz Street, Lyttelton Manor, Centurion 0157
Transfer secretaries
Link Market Services South Africa Proprietary Limited
13th Floor, Rennie House, 19 Ameshoff Street, Braamfontein
(PO Box 4844, Johannesburg 2001)
Sponsor
PSG Capital
www.csgholdings.co.za
Date: 22/11/2018 09:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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