CSF GROUP PLC 
By For immediate release 27 December 2013
CSF Group plc
("CSF" or "the Group")
HALF-YEAR RESULTS
For the Six Months Ended 30 September 2013
CSF Group plc (AIM: CSFG), a leading provider of data centre facilities and services in South East Asia and the largest provider of data centre services in Malaysia, today announces its unaudited half-yearly results for the six months ended 30 September 2013.
Financial highlights:
• Group revenue at RM45.3m (£8.6m*) (H1 2013: RM63.9m (£12.1m*)).
• Loss before tax at RM88.7m (£16.9m*) (H1 2013 profit before tax: RM1.4m (£0.3m*)) due to lower data centre revenue at RM30.5m (£5.8m*) (H1 2013: RM51.0m (£9.7m*)), provision for onerous leases of RM40.0m (£7.6m*) (H1 2013: Nil)) and provision for doubtful debts on advances made to finance the fit-out of the data centre and operating expenditure of the joint-venture in Indonesia of RM31.0m (£5.9m*) (H1 2013: Nil)).
• EPS at loss 56.08 sen (loss 10.65p*) per share (H1 2013: profit 0.09 sen (profit 0.02 p*) per share).
• Closing cash position as at 30 September 2013 of RM43.7m (£8.3m*) (31 March 2013: RM61.9m (£11.8m*)).
Operational highlights
• Completed Block B fit-out works at CX5.
• Commenced Block C fit-out works at CX5 data centre which is scheduled for completion by first half of financial year 2015.
• Currently pursuing a pipeline of potential customers alongside ongoing development and marketing activities for CX2 and CX5.
• The Group has completed the initial phase of a strategic business review and continues to focus on two core business priorities, which are developing network connectivity in all CSF data centres to improve the fiber optic connectivity between the data centres and exploring opportunities for potential strategic partnership programmes with global service providers to deliver a total package to end users.
* The pro forma balances in pounds Sterling are included solely for convenience. The pro forma balances in pounds Sterling are stated, as a matter of arithmetical computation only, on the basis of all current and prior year balances being translated from Malaysian Ringgits into pounds Sterling at the rate prevailing on 30 September 2013 of RM5.2666 : £1.00. This translation should not be construed as meaning that the Malaysian Ringgit amounts actually represent, have been, or could be converted into the stated number of pounds Sterling.
For further information:
CSF Group
Phil Cartmell, Interim Chairman
+603 8318 1313
Cenkos Securities (Nominated Adviser & Broker)
Bobbie Hilliam / Elizabeth Bowman
+44 (0)20 7397 8900
Buchanan
Jeremy Garcia / Gabriella Clinkard
+44 (0)20 7466 5000
INTERIM CHAIRMAN'S STATEMENT
Overview of the current financial period
The Group continued to experience challenging conditions during the half year and as a result, incurred a net loss of RM89.7m (£17.0m*). This disappointing performance is mainly attributed to the loss of two key tenants in Block A of CX5 and CX2 as previously announced. The aforementioned tenants had approached the Group to settle the amounts owed over an extended period of time and negotiated break clauses, by way of a temporary suspension of the contract in the case of the tenant for Block A of CX5 and in the case of the tenant for CX2, a non-renewal of the contract. Hence, Block A of CX5 was vacated and the occupancy of CX2 decreased to approximately 60% which resulted in the Group incurring a gross loss of RM6.6m (£1.3m*) (H1 2013 gross profit: RM16.2m (£3.1m*)).
Loss before tax for the financial period amounted to RM88.7m (£16.9m*) (H1 2013 profit before tax: RM1.4m (£0.2m)) and was mainly attributable to (i) the gross loss incurred on the data centre rental business; (ii) provision for onerous leases of RM40.0m (£7.6m*) in the current financial period as a result of the uncertainty as to whether future revenues will be adequate to cover the lease rental and other operating costs of CX5; and (iii) a provision for doubtful debts relating to advances made to PT Cyber CSF, the Group's joint-venture in Jakarta, Indonesia of RM31.0m (£5.9m*) which are considered uncertain as the Group is now reviewing its long term strategy in that country.
As at 30 September 2013 the Group's bank balance was RM43.7m (£8.3m*) (31 March 2013: RM61.9m (£11.8m*)). In addition, the Group has approximately RM79.3m (£15.1m*) tied up as working capital for the development of CX5 which will be collected over the next financial year in line with the completion of the sale Blocks B and C in the last quarter of financial year 2014 and the first half of financial 2015, respectively. This will provide a short term increase in cash reserves, but will increase the level of lease rental payments. The completion and sale of Blocks B and C are contracted between the developer of CX5 (the seller of the facility) and the sovereign fund (the buyer of the facility) and are not dependent on the securing of tenants by CSF.
The Board wishes to clarify that it disagrees with the position taken by the Company's auditors in their report. We are pleased that they concur with our basis of preparation as a going concern. We do not agree that the terms outlined in their report represent a material uncertainty to this basis. The Company is expecting significant cash payments during 2014 linked to the development of CX5. These payments are legally binding subject to an independent inspection process, which in the case of Block B is already well progressed. We do not expect any significant delay in these payments but are confident that should a delay occur, any cash shortfall could be mitigated with sensible cash management.
Business strategy
As highlighted in the full year results in August 2013, the Company has completed the initial phase of a strategic business review (the 'Review'). This broader review is now complete and the Company continues to be focused on two core business priorities, which are as follows:
· Developing network connectivity in all CSF data centres to improve the fiber optic connectivity between the datacentres and into Singapore; and
· Exploring opportunities for potential strategic partnership programmes with global service providers to deliver a total package to end users.
To that end, a RM3.7m (£0.7m*) capital investment to connect the Company's three data centre facilities in Cyberjaya, Malaysia, with fiber optics has commenced and is due to be completed by Q1 2014. Once completed, this enhanced data connectivity will significantly improve CSF's service offering for existing customers and help better position the Company's facilities.
Management are now continuing to implement strategic initiatives across the Company's pricing model and customer relations and enhancing sales and marketing resources. Development and support have now been made a key priority as well as an on-going efficiency programme to manage the cost base.
The sales and marketing functions continue to be enhanced. The team is now in active discussions with several international and local businesses interested in potentially using facilities in Malaysia. The market within South East Asia for high quality, state of the art data centres remains competitive and therefore, management have sought to scale back all marketing activities outside the core geographic footprint in order to mitigate overseas exposure in both management time and capital expense. Our team continues to review the opportunities in Jakarta, Indonesia and assess long-term investment strategy in that country.
Following the Board changes in July 2013, the Board believes that stabilising the business should be the key focus and whilst progress has been made, more time is required to stabilise the performance of the Company before making such an important senior appointment as Chief Executive Officer.
The board remains focused on protecting the Company's cash position as well as aligning cost control with our future strategic direction and business planning. Whilst we attempt to implement a major restructuring of the business some further costs of investment will be incurred. However, although these costs will be strictly controlled the business is expected to incur further losses before the next financial year end. The Board is continuing to assess the best outcome for the Company including engaging in discussions with potential strategic partners and enhancing the value of assets. As the restructuring continues we will update shareholders in due course.
Dividends
The Board does not propose any payment of dividends in respect of the six months period ended 30 September 2013 (H1 2013: Nil).
Phil Cartmell
Interim Chairman
CSF Group plc
* The pro forma balances in pounds Sterling are included solely for convenience. The pro forma balances in pounds Sterling are stated, as a matter of arithmetical computation only, on the basis of all current and prior year balances being translated from Malaysian Ringgits into pounds Sterling at the rate prevailing on 30 September 2013 of RM5.2666 : £1.00. This translation should not be construed as meaning that the Malaysian Ringgit amounts actually represent, have been, or could be converted into the stated number of pounds Sterling.
CHIEF FINANCIAL OFFICER'S REVIEW
Introduction
The Group recorded basic earnings per share ("EPS") of loss 56.08 sen (loss10.65 p*) (H1 2013: profit 0.09 sen (profit 0.02 p*)).
Financial results
Proforma | ||||
6 months ended 30 September 2013 RM'000 (unaudited) | 6 months ended 30 September 2012 RM'000 (unaudited) | 6 months ended 30 September 2013 £'000 (unaudited) | 6 months ended 30 September 2012 £'000 (unaudited) | |
Total Group revenue | 45,283 | 63,888 | 8,598 | 12,130 |
Gross (loss) / profit | (6,607) | 16,293 | (1,255) | 3,093 |
Other operating income | 351 | 1,067 | 67 | 203 |
Share of loss after tax of associate | - | (120) | - | (23) |
Share of loss after tax of joint venture | (5,513) | (2,671) | (1,047) | (507) |
Administrative expenses | (8,593) | (12,346) | (1,632) | (2,344) |
Net allowance for doubtful debts - others | 4,403 | (429) | 836 | (82) |
Net allowance for doubtful debts - joint venture | (31,000) | - | (5,886) | - |
Share-based payment | (624) | (624) | (118) | (118) |
Provision of onerous leases | (40,000) | - | (7,595) | - |
Management restructuring cost | (1,036) | - | (197) | - |
(Loss) / Profit from operations | (88,619) | 1,170 | (16,827) | 222 |
Net finance income / (cost) | (125) | 192 | (24) | 37 |
(Loss) / Profit before tax | (88,744) | 1,362 | (16,851) | 259 |
Tax | (816) | (1,247) | (155) | (237) |
Other comprehensive income | (188) | 26 | (36) | 5 |
Total comprehensive income for the period | (89,748) | 141 | (17,042) | 27 |
Basic EPS | (56.08) sen | 0.09 sen | (10.65) p | 0.02 p |
Revenue
Proforma | ||||
6 months ended 30 September 2013 RM'000 (unaudited) | 6 months ended 30 September 2012 RM'000 (unaudited) | 6 months ended 30 September 2013 £'000 (unaudited) | 6 months ended 30 September 2012 £'000 (unaudited) | |
Data centre rental income | 30,490 | 50,962 | 5,789 | 9,676 |
Maintenance income | 4,876 | 4,225 | 926 | 802 |
35,366 | 55,187 | 6,715 | 10,478 | |
Design and fit-out of data centre facilities | 9,917 | 8,701 | 1,883 | 1,652 |
Total Group revenue | 45,283 | 63,888 | 8,598 | 12,130 |
Data centre rental revenue decreased by 40.1% to RM30.5m (£5.8m*) from RM51.0m (£9.7m*) in H1 2013 mainly due to the loss of two key tenants in Block A of CX5 and CX2. The customer in Block A of CX5 negotiated with the Group to temporarily suspend the contract and in the case of the customer in CX2, a non-renewal of the contract. Hence, Block A of CX5 was vacated and the occupancy of CX2 decreased to approximately 60%.
Revenue from the design and fit-out of data centre facilities increased to RM9.9m (£1.9m*) from RM8.7m (£1.7m*) mainly due to higher revenue contributed with the development of Block C of CX5. The total revenue derived from project management services and fit-out works carried out at CX5 during the financial period amounted to RM6.5m (£1.2m*) (H1 2013: RM1.3m (£0.3m*)).
Gross (loss) / profit margin
The Group incurred a gross loss margin of 14.6% as compared to an average gross profit margin of H1 2013 of 25.5% mainly due to the significant decrease in data centre rental revenue as explained above. We continue to expect the overall contribution of CX5 to improve when customers are secured for Blocks A, B and C, and this remains a key priority for the Group.
The gross profit margin on maintenance revenue was slightly higher at 63.3% (H1 2013: 57.3%) mainly due to the improvement in efficiency in carrying out scheduled maintenance works.
The lower gross profit margin on design and fit-out of data centre facilities at 16.1% (H1 2013: 28.4%) was mainly attributable to certain projects secured during the financial period yielding lower profit margin.
Loss from operations
Loss from operations for the financial period amounted to RM88.6m (£16.8m*) (H1 2013 profit from operations: RM1.2m (£0.2m*)). The loss from operations was mainly attributable to (i) the gross loss incurred on the data centre rental business as explained above; (ii) the provision for onerous leases of RM40.0m (£7.6m*) in current financial period (H1 2013 - Nil) as a result of the uncertainty as to whether future revenues will be adequate to cover the lease rental and other operating costs of CX5 over the course of the lease; and (iii) provision for doubtful debts on advances to PT Cyber CSF, the Group's joint-venture in Jakarta, Indonesia of RM31.0m (£5.9m*) given the Group is still reviewing its long term investment strategy in that country.
Cash and working capital
As at 30 September 2013 the Group's bank balance was RM43.7m (£8.3m*). The Group generated negative net operating cash flow of RM14.4m (£2.7m*) (H1 2013: positive net operating cash flow of RM41.8m (£7.9m*)) mainly due to the lower data center rental revenue as explained above.
The net cash flow used in investing activities of RM4.3m (£0.8m*) was mainly due to cash advances to PT Cyber CSF of RM2.8m (£0.5m*) to fund capital expenditure and working capital, and payment to the outgoing shareholders of Third Wave Infrasys Sdn Bhd of RM1.2m (£0.2m*) after meeting the profit guarantee for the financial year ended 31 March 2013.
Critical accounting judgement and key sources of estimation uncertainty
The areas of critical accounting judgement and key sources of estimation uncertainty as disclosed on pages 41 to 43 of the Group's Annual Report for the year ended 31 March 2013 remain valid for the six months ended 30 September 2013 except for recoverability of amounts owing by PT Cyber CSF
As at 30 September 2013, the Group has provided an allowance of RM31,000,000 for impairment of the unsecured advances to PT Cyber CSF. This related company has been suffering financial losses since incorporation in June 2011 and requires a longer period to break even than earlier forecast.
Going concern
These financial statements have been prepared on a going concern basis. The directors' consideration of going concern and the associated uncertainties are provided in Note 1.
Lee King Loon
Chief Financial Officer
CSF Group plc
* The pro forma balances in pounds Sterling are included solely for convenience. The pro forma balances in pounds Sterling are stated, as a matter of arithmetical computation only, on the basis of all current and prior year balances being translated from Malaysian Ringgits into pounds Sterling at the rate prevailing on 30 September 2013 of RM5.2666 : £1.00. This translation should not be construed as meaning that the Malaysian Ringgit amounts actually represent, have been, or could be converted into the stated number of pounds Sterling.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the 6 months ended 30 September 2013
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the 6 months ended 30 September 2013
Note | 6 months to 30 September
2013 | 6 months to 30 September 2012 RM'000 | Proforma 6 months to 30 September 2013 £'000 | Proforma 6 months to 30 September 2012 £'000 | |
(unaudited) | (unaudited) | (unaudited) | (unaudited) | ||
Revenue | 6 | 45,283 | 63,888 | 8,598 | 12,130 |
Cost of sales | (51,890) | (47,595) | (9,853) | (9,037) | |
Gross (loss) / profit | (6,607) | 16,293 | (1,255) | 3,093 | |
Other operating income | 351 | 1,067 | 67 | 203 | |
Share of loss after tax | |||||
- associate | - | (120) | - | (23) | |
- joint venture | 7 | (5,513) | (2,671) | (1,047) | (507) |
Administrative expenses | (8,593) | (12,346) | (1,632) | (2,344) | |
Net allowance for doubtful debts | |||||
- others | 4,403 | (429) | 836 | (82) | |
- joint-venture | 7 | (31,000) | - | (5,886) | - |
Share-based payment | 8 | (624) | (624) | (118) | (118) |
Provision for onerous leases | 9 | (40,000) | - | (7,595) | - |
Management restructuring cost | 10 | (1,036) | - | (197) | - |
Total operating expenses | (76,850) | (13,399) | (14,592) | (2,544) | |
Operating (loss) / profit | (88,619) | 1,170 | (16,827) | 222 | |
Finance income | 668 | 368 | 127 | 70 | |
Finance costs | (793) | (176) | (151) | (33) | |
(Loss) / Profit before tax | (88,744) | 1,362 | (16,851) | 259 | |
Tax | (816) | (1,247) | (155) | (237) | |
(Loss) / Profit for the financial period | (89,560) | 115 | (17,006) | 22 | |
Other comprehensive income | |||||
Foreign currency translation | (188) | 26 | (36) | 5 | |
Total comprehensive income for the period | (89,748) | 141 | (17,042) | 27 | |
EPS - Basic (sen) | 11 | (56.08) | 0.09 | (10.65) p | 0.02 p |
- Diluted (sen) | 11 | (56.08) | 0.09 | (10.65) P | 0.02 p |
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