JSE-listed industrial contract services group CSG Holdings had a “satisfactory” first half, but a “disappointing” second half in the financial year ended March 31, owing to a challenging business environment and trading conditions.

“This was aggravated by a few negative one-off events relating to bad debts, impairments of goodwill, stock devaluation and losses, fraud and malpractices. However, we feel comfortable with our normalised earnings before interest, taxes, depreciation and amortisation of R97-million as a base for the 2020 financial year,” CEO Pieter Dry said on Monday.

The company reported headline earnings of R29-million, or 5.58c apiece, which was a decrease of 74% compared with the prior financial year.

CSG posted a R140-million loss after tax for the reporting period and, therefore, decided to retain cash and declare no dividend for year. An interim dividend may, however, be on the cards for the coming six months, it said.

Dry said CSG’s Foods and Afriboom Cleaning division continued to perform well as a result of organic growth, cost savings initiatives and effective procurement. During the reporting period, this division bought caterers Shesha Film and Event for R8-million. 

“CSG Foods now has a centralised kitchen strategy and will expand its client base. Afriboom is diversifying successfully into the commercial and health markets, while CSG Hygiene is growing exceptionally and should be profitable by the end of the next financial year.”

Dry added that CSG Hygiene had had a minor negative impact on earnings, but was otherwise growing well and should be profitable by the end of the next financial year.

CSG Hygiene is a new greenfield project offering by the group.

The group’s Global Industrial Projects division, meanwhile, recorded lower earnings in the reporting period, owing to the nonrenewal of a substantial mining contract, which resulted from some of the new Mining Charter 3 requirements.

CSG’s Security division contributed a loss of R15-million to the operating profit of the group. Dry said the integration and consolidation of acquisitions in 2018 had taken longer than anticipated.

“Pressure on consumer spending and the increase in fuel prices had a significant impact on this sector. Additionally, set-up costs and initial operational losses of around R5.5-million were incurred as a result of the new centralised control room in Pretoria, which contributed to the decrease in operating profit.”

On the positive side, following the creation of a mining division within the security division to provide security services at mines, CSG subsidiary Revert Risk Management obtained two mining security contracts with a combined turnover of around R48-million a year.

CSG expecs to realise the benefit of investments in infrastructure and operational capacity over the longer term as it starts to build scale.

Revenue generated by the CSG People division decreased by 3% to R926-million, contributing R42.3-million to the profit of the group, mainly as a result of certain infrastructure projects having been completed.

The division had diversified away from traditional labour broking into other employee service models such as professional contracting, permanent recruitment, training and black economic empowerment consulting.

“The performance [of CSG People] was substantially lower, owing to fraud and malpractice by a senior manager, the end of a sizable contract, bad debts mostly from within the construction industry, as well as the initial adverse effect of management changes in ConinghamLee and CSG Skills Institute,” said Dry.

The new management teams have completed overhauls, changed the cultures, structures, systems and processes to improve the efficiencies and position the businesses for growth.

Meanwhile, Dry noted that security remained an important aspect in all walks of life using a combination of human resources and technology to curb crime. The centralised control room, Revert and CSG subsidiary HiTech have promising pipelines, the benefits of which are expected to be seen in the 2020 and 2021 financial years.

He added that CSG had been conservative this year thus far and had done a thorough “clean-up” to ensure it was was well-positioned for growth as a result of its diversification strategy, the implementation of solid growth platforms and new greenfield projects.

“Our mission to be a leading strategic outsource partner of choice for staffing solutions, facilities management and security in South Africa, remains unchanged. We have consolidated and increased the basket of services we offer to our clients,” Dry said.