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
EBIT 31.6 19.0
Interest expense/(income) (0.9) 1.0
Tax 10.4 7.9
NPAT 22.1 10.1
Add back: goodwill amortisation 4.5 8.6
NPAT Before Goodwill Amortisation 26.6 18.7
* 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
Phone: 612 9844 0300
e-mail: [email protected]
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