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CSG HOLDINGS LIMITED - Voluntary Operational Update, Outlook For 2020 And Change In Release Date Of Results

Release Date: 30/04/2019 11:00
Code(s): CSG     PDF:  
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Voluntary Operational Update, Outlook For 2020 And Change In Release Date Of Results

(Incorporated in the Republic of South Africa)
(Registration number: 2006/011359/06)
Share code: CSG
ISIN: ZAE000184438
(“CSG”, “the Company” or together with its
subsidiaries, “the Group”)


CSG is a multi-support services group, that offers a wide range of services in facilities
management, security and risk solutions, and staffing solutions in Southern Africa.

CSG wishes to update shareholders on the impact of the current economic climate, certain
operational and performance matters which occurred in 2019, which resulted in the trading
statement update on 20 March 2019, as well as the positive outlook for 2020.

The divisional performance for the 2019 financial year on which this operational update is
based and the outlook for 2020, has not been reviewed and reported on by the Company’s

Divisional performance 2019 financial year:

      Security and Risk Solution:

      Integration and consolidation of security acquisitions made during 2018 took longer than
      anticipated. Pressure on consumer spending and the increase in fuel prices had a
      significant impact on this sector. In addition, the set-up costs and initial operational
      losses of approximately R5,5 million were incurred as a result of the new centralised
      control room in Pretoria, which contributed to the decrease in operating profit. CSG
      expects to realise the benefit of these investments in infrastructure and operational
      capacity over the longer term.

      The loss-making business of Hi-Tech White River was sold after year end, effective 1
      May 2019 and contributed a loss of earnings of approximately R4,2 million for the 2019
      financial year. The Hi-Tech guarding division realised some losses, but management
      have been successful in turning this business around and it is back on track and
      performing as budgeted. The remainder of the Hi-Tech Group performed in line with the
      previous year.

      CSG established a centralised security structure, which included the bolstering of our
      operational infrastructure (to open new branches in Port Elizabeth, Durban, etc) in
      Revert Risk Management to the cost of approximately R3,8 million. In addition, an
      amount of approximately R6 million has been provided for in 7 Arrows in relation to the
      recoverability of bad debt that accrued during the integration period of this business.
      Facility Management:

      Both CSG Foods (which now includes the remote sites business) and Afriboom Cleaning
      continued to perform well as a result of a combination of organic growth, cost savings
      initiatives and effective procurement.

      Afriboom’s greenfield project, CSG Hygiene, had a minor negative impact on earnings.

      Global Industrial Projects’ earnings declined significantly from the previous year, due to
      a substantial mining contract that could not be retained as a result of the mining charter’s
      focus on local procurement. This contract was awarded to a local BEE start-up company,
      following the 8 years of service from Global Industrial Projects.

      Staffing Solutions:

      The performance of the Staffing division during the 2019 year was substantially down
      from the previous year due to a number of reasons. Some of the most important being
      fraudulent activities and malpractices, of approximately R9 million over a period of time,
      by a senior manager in BDM Staffing (corrective action has been taken), a sizable BDM
      Staffing contract coming to an end, bad debts mostly from the construction industry
      written off in both BDM & M&S Projects, as well as the initial adverse effect of
      management changes in ConinghamLee and CSG Skills Institute.

Balance sheet:

Group gross debt has been maintained at similar levels to those reported for September 2018.
CSG is continuously pursuing avenues to optimise its capital structure and bolster its balance

Overall economic climate and outlook for 2020

The current business environment and trading conditions remain challenging. However
notwithstanding same, the Group is well positioned for growth as a result of its successful
diversification strategy, the creation of the centralised services within the security division,
various other solid growth platforms created and new greenfield projects commenced. CSG is
confident that certain negative once-off events which occurred in the 2019 financial year,
communicated to shareholders, will not reoccur in the 2020 financial year.

      Security and Risk Solution Division

      Security remains an important aspect of all walks of life with a move towards the use of
      both the human element and technology to curb new crime tendencies.

      The signing of certain new technical security and technology contracts have been
      deferred due to the delay in the operational status of the centralised control room in
      Pretoria, which has had a negative impact on the Company’s performance in the short
      term. All design, planning and operational issues have now been rectified and
      management is of the view that this will improve the outlook for this division in the coming
      years. The centralised control room currently has a promising pipeline, the benefit of
      which is expected to flow through in the 2020/2021 financial years. The initial estimate
      was that this unit should start to be profitable towards the end of 2019. It is now evident
      that the J-Curve is much deeper than anticipated, however is expected to turn positive
      over the long run.

      Creation of the new operational structure was necessary to grow into a national service
      provider with offices in all the main areas in South Africa in order to service national
      blue-chip companies. To support this operational structure and also to be able to service
      a much bigger anticipated security grouping, a strong back office and support
      infrastructure was created with spare capacity. The new structure (combining Revert
      Risk Management and 7Arrows) allows the Company to place more focus on vertical
      divisions, being guarding, armed response, technical, centralised expense controls and
      sales and marketing. As a result of this structure, we also created a mining division within
      the security cluster, focussing on providing security services at mines. Revert Risk
      Management obtained two mining security contracts with the most recent contract being
      on 1 February 2019. These two contracts have a combined turnover in the region of R4
      million per month.

      Both Revert Risk Management and 7Arrows Security have promising pipelines, in
      excess of R30 million.

      Facilities Management (“FM”):

      The companies in the FM division have strong management structures in place, are
      controlling overhead expenditure, have promising sales pipelines and are investing in
      various innovative projects to diversify their business models.

      CSG Foods invested in an events & function business for a total purchase consideration
      of R8 million, focussing on the vibrant tv & film industry. This Cape Town based business
      has a well-equipped kitchen as well as mobile kitchens, which also create a platform for
      CSG Foods to launch its centralised kitchen strategy to not only provide their existing
      contracts with pre-made meals but also to provide food products to clients without
      kitchen facilities.

      CSG Foods has a solid client base including residences at the Universities of
      Stellenbosch and Wits, Northern Academy Curro, Steve Biko, Pretoria Urological- &
      Vergelegen Medi Clinic hospitals, to name a few.

      Afriboom Cleaning’s momentum in securing new contracts continues, landing MAN
      Trucks (nationally), Michael Angelo Hotel (Sandton) , Deloitte (nationally), Legacy
      Hotels, Cornwall Hill College and a number of Curro schools, to mention a few. Although
      Afriboom remains a leading supplier to the hospitality industry, it is diversifying
      successfully into the commercial and health markets.

      Afriboom’s greenfields project, CSG Hygiene, is being well received in the market. This
      business is growing exceptionally and should be profitable by the end of the next
      financial year. The hygiene division was started as an additional service that added to
      the existing full facility management basket of services that CSG would like to offer it’s
      clients. The start-up was decided on as suitable acquisitions at the right price and fit
      could not be secured

      Staffing Solution:

      CSG’s Staffing Division diversified away from traditional labour broking into businesses
      that focus on other employee service models like professional contracting (above the
      threshold), permanent recruitment, training and BEE consulting.
      Leadership of both ConinghamLee and CSG Skills Institute changed during the last 6
      months. The new management completed overhauls of the companies, changing the
      cultures, structures, systems and processes to improve the efficiencies and position the
      businesses for growth.

      M&S Project’s performance remains solid. It has been re-focussed to supply
      professional contractors (above the threshold) mostly to the petrochemical and oil
      industry. Management is excited about the opportunities in this sector.

      BDM Staffing experienced a difficult year with fraudulent activities and
      misrepresentation of information by a senior manager. Processes, structures and
      systems of this business were overhauled in the last few months. Accordingly, we are
      expecting improved financial performance in line with previous years.


Our strategy remains to expand into service delivery businesses that are more technology
based, with high barriers of entry, and which are not too capital intensive.

We recently appointed a Group Business Development Manager to head-up our aggressive
organic growth strategy, ensuring marketing and sales synergies between the various group
companies are unlocked as well as offering clients a total integrated solution.

CSG management remains positive about the future.

Expected date of release of results:

Historically, CSG published reviewed provisional results within 2 months of its year-end and
the annual integrated report within 6 months of its year-end. The JSE rules were changed so
as to allow companies only 4 months within which to release the annual integrated report. The
CSG board has therefore resolved to publish the annual integrated report, including audited
results going forward within 3 months of its year-end, and to no longer publish reviewed
provisional results. Accordingly, it is anticipated that CSG will be publishing its audited results
for the year ending 30 March 2019, together with its annual report, on or about 28 June 2019.

As mentioned in the initial trading statement issued on 20 March 2019, a further trading
statement will be issued as soon as there is a reasonable degree of certainty as to the likely
range within which the Company’s earnings per share and headline earnings per share are
expected to decrease.

30 April 2019

PSG Capital

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