re: KAZ the full announcement
Clarification of Revised 2002 Financial Forecast
KAZ GROUP LIMITED 2002-05-03 ASX-SIGNAL-G
HOMEX - Sydney
+++++++++++++++++++++++++ On Tuesday, April 30th, KAZ Group Limited ("KAZ" or the "Company") released a revised 2002 financial forecast. The Board of Directors of KAZ believes that further explanation of the revised forecast and the factors contributing to it will assist the market in properly understanding the short term impact of certain growth initiatives, the Aspect acquisition, weaker than expected trading conditions, and the underlying strength and growth of the business.
Media reports suggest that sections of the market believe the profit clarification should have been made at an earlier date. A detailed response to such comments has been provided to the ASX, which shows that this was not the case. Included in this response was the fact that the Company has taken the view that significant prospects, representing around $8 million possible FY02 EBIT, would be deferred or not achieved.
The estimated impact of the factors described in the earlier announcement on the Company's operating performance are set out in detail in the table below. REVISED/ PREVIOUS UNDERLYING FY '02 $M FY '02 $M
EBITDA 38.8 36.2
Non recurring expense items Integration costs 1.4 PeopleSoft Implementation - 1.4 Asian Initiative - 0.9 New Data Centres - 0.6 Total - 4.3
ERITDA 38.8 40.5 (Excluding non-recurring items)
The revised 2002 forecast shows Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) of $36.2 million as compared to the previous forecast of $38.8 million. In the opinion of the Directors and other market commentators, EBITDA is a true indication of the underlying profitability of KAZ. The shortfall in KAZ EBITDA for the 2002 year as against forecast is the result of both normal recurring business items as well as once-off non- recurring items. The normal business items include continued flatness in IT discretionary spending by customers and slowness in decision making, costs associated with continuing growth initiatives and higher than expected project costs. The non-recurring items include acquisition and integration costs. A description of key items follows.
Recurring operating expenses Whilst there has not been any significant change in the underlying cost base of the Company certain initiatives were undertaken to ensure sound management of the growth experienced and forecast for the business. The additional cost of the Group Management structure in FY02 is estimated at $2 million. Costs associated with positioning the Company to pursue Tier 1 outsourcing opportunities in Government and large corporates is estimated at $0.8 million in FY02.
Non-recurring operating expense items The cost of th e integration of Aspect Computing ("Aspect") through to June 2002 is estimated at $1.4 million. This includes estimates as to staffing costs, consultancy costs, marketing and certain structural costs.
Mid 2001 the Company elected to purchase and roll-out a scaleable group- wide management system. This software will provide a standard across all KAZ Group businesses and replace the differing software utilised by acquired businesses. The system provides a management control platform which allows for growth of the company in the future. The estimated cost to EBITDA in FY02 is $1.4 million.
The cost to EBITDA of new data centres in Adelaide and Perth in FY02 is estimated at $0.6 million.
Factors contributing to the variation in KAZ's Net Profit After Tax and Before Goodwill Amortisation from the previous forecast are summarised below: PREVIOUS REVISED FY '02 FY '02 $M $M
EBITDA 38.8 36.2
Depreciation 2.7 4.4 Amortisation Aspect Goodwill - 2.8 Other Acquisition Goodwill 4.5 5.8 Other Intangibles - 0.9 Leases - 3.3* Total 7.2 17.2
* The Lease Amortisation charge included in the revised forecast is due to the refinancing of some leases from operating to finance leases. These were not anticipated in the previously announced forecast. This refinancing of leases was reflected in the half yearly financial results to December 2001 released on the 26th of February 2002.
Depreciation has increased as a direct result of Aspect depreciation, higher capital expenditure in growth initiatives, such as the fitout of the new AAS premises, implementation of the new group-wide business system, implementation of group-wide networks, as well as the establishment of new data centres.
The increased Other Acquisition Goodwill is due to the recognition of actual and probable additional purchase consideration in relation to the acquisition of Australian Administration Services ("AAS") and the Fundi Software Group. These payments are earn-outs resulting from the over achievement of revenue and profit targets, At the time of the initial FY02 forecast these payments were contingent and immeasurable and as such no amortisation could be forecast. At the point in time when these payments become probable and reliably measurable they are brought to account and amortised from the date of acquisition. This can result in back charges relating to prior periods. The revised forecast includes $0.9 million and $0.4 million of recurring and non- recurring amortisation charges respectively in relation to the above acquisitions.
The tax expense and the effective tax rate has increased primarily as a result of the higher Goodwill Amortisation which is non deductible.
KAZ remains committed to its strategy to be a leading provider of information Technology Outsourcing (ITO) and Business Process Outsourcing (BPO) services. In the 2002 financial year KAZ invested considerable resources in putting in place the building blocks to achieve this strategy. Notwithstanding this considerable investment, KAZ is forecasting 78% revenue growth and 25% EBITDA growth over 2001, continuing the company's 20 year history of profitable growth.
For further information please contact: Mr Peter Kazacos MANAGING DIRECTOR KAZ Group Limited
