1.       General information

The Preliminary Announcement and the final accounts of the Group were approved by the Board of Directors on 29 September 2017. The financial information set out in this Preliminary Announcement does not constitute the Group's statutory accounts for the year ended 31 March 2017 but is derived from those accounts. The statutory accounts for 2017 will be delivered to the Jersey Registrar of Companies in September 2017. The auditors have reported on the 2017 accounts and their report was unqualified and did not draw attention to any matters by way of emphasis.

 (i)     Basis of preparation

The consolidated financial statements of CSF Group plc, for the year ended 31 March 2017 have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU.

          While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria, this announcement does not itself contain sufficient information to comply with IFRS.  The Company expects to publish full financial statements that comply with IFRS on or before 30 September 2017. 

(ii)     Pro forma

          The inclusion of pro forma balances in pounds Sterling is 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 balances being translated from Malaysian Ringgits into pounds Sterling at the rate prevailing on 31 March 2017 of RM5.5053: £1.00. This translation should not be construed as meaning that the Malaysian Ringgit amounts actually represent, or have been or could be converted into the stated number of pounds Sterling.

(iii)     Basis of accounting

The accounting policies adopted are consistent with those of the annual financial statements for the year ended 31 March 2017, as described in those financial statements.

(iv)     Forward-looking statements

Certain statements in these condensed consolidated financial results are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.

The Group's business activities, together with the factors likely to affect the future development, performance and position are set out in the Chairman's Statement. The financial position of the Group, its cash flows and liquidity positions are described in the Chief Financial Officer's Review. In addition, the notes to financial statements include foreign currency risk management, interest rate risk management, credit risk management and liquidity risk management.

As at 31 March 2017, the Group's cash and cash equivalents excluding deposits held on behalf of the Employee Benefit Trust stand at RM58.0 million.

The Directors have prepared financial projections, including cash flows, for a period up to 31 March 2019. The projections include sensitivity testing to consider a reasonable worst case scenario.  Based on these projections and taking into consideration the current financial position of the Group and future capital and lease commitments, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements.  In reaching this conclusion the directors have paid particular attention to the following factors:

·     The positive progress that is already being made in restructuring the business and the heightened focus on cash management;

·     The existing cash reserves of the business, and the fact that the Group has low levels of bank borrowings with low financial covenants;

·     The Group's business model is to lease its data centres as opposed to outright ownership.  As a result, the Group is committed to regular lease rental payments, which constitute a significant proportion of the Group's cost base. The Group therefore needs to achieve a certain level of tenant occupancy to cover the minimum lease and other costs of ownership of a given data centre;

·     The Group has already secured new tenants for part of CX5 and is in active discussions with a number of other potential tenants to secure an adequate level of occupancy;

·     Due to changes in the data centre rental market, current market rentals have declined. In this regard the group are monitoring closely its cost and looking at ways to improve the operation and procurement process including working closely with its suppliers to reduce the overall cost; 

·     The Group has completed the restructuring with the freeholder on the lease rental payments on CX1, CX2 and CX5, with the revised lease rental rates commencing on 1 January 2016 whereby the lease rental payments shall be lower in the earlier years and progressively increasing thereafter. The outstanding lease rental accrued up to 31 December 2015 will be settled over an extended period;

·     The funding requirements of existing and proposed new ventures and/or projects.

Given prevailing market conditions and the current levels of occupancy in the Group's data centres, the Group is forecast to continue to make operating losses and have operating cash outflows. The Board is continuing to review the Group's business model with the aim of establishing sustainable profitable trading. 

Notwithstanding the above and taking into consideration the current financial position, future capital and lease commitments of the Group, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the consolidated financial statements for the year ended 31 March 2017. It should be noted that if the Group were to continue in its current state with no change to its customer base or further reduction in the freeholder lease rentals, its cash reserves would be depleted by FY2020. The Group has also considered the scenario in which the proposed Conditional Disposal of CSF CX completes. Under this scenario, the Group's operating losses and cash outflows are forecast to significantly reduce.

(vi)    Critical accounting judgement and key sources of estimation uncertainty

         Critical judgements in applying the Group's accounting policies

         In the process of applying the Group's accounting policies, the Directors must make estimates and assumptions that affect the amounts recognised in the financial statements.  Several of these estimates and judgments are related to matters that are inherently uncertain as they pertain to future events.  These estimates and judgments are evaluated at each reporting date and are based on historical experience, internal controls, advice from external experts and other factors, including expectations of future events that are believed to be reasonable under the circumstances.  The resulting accounting estimates may vary from the actual results.  The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows: 

Revenue recognition

Revenue from the installation, integration and fit-out of equipment is recognised over the period of the related fit-out activity, which requires the Directors to consider the costs incurred to the balance sheet date and estimate the costs to completion of the contract. The estimation of costs to complete on contracts is judgemental and requires an estimate of the cost of materials, labour hours and cost, and time to complete.  The estimate of the total costs to complete is based on historical experience and status of each project. The estimates are reviewed regularly and revised as necessary. Any significant change in these estimates will result in a change to the revenue recognition and the margin for future periods.  

          Key sources of estimation uncertainty

          Provision for bad and doubtful debts

The provision for bad and doubtful debts includes the assessment of amounts receivable on an individual and collective basis. For individual provisions, events and circumstances such as breaching credit terms, evidence of the debtor experiencing financial difficulties, and potentially the probability of the debtor entering bankruptcy or financial reorganisation are considered. Based on these indicators a judgment is made whether a provision is required. In respect of a collective assessment, the estimation of the future settlement profile of trade receivables is judgemental and includes consideration of past experience in collecting payments, an increase in the number of delayed payments past the credit period as well as observable changes in the economic conditions that correlate with default on receivables.

The Group made general allowance for doubtful debts pertaining to trade receivables aged six months and above.

Recoverability of amounts owing from IDCB

Trade receivables includes an aggregate amount of RM29.3m due from IDCB, the developer of the CX5 data centre. During the financial year, the Group received RM3.0 million. The Group made a 100% provision for doubtful debts in the prior year as the balance of trade receivables of RM29.3 million is expected to be collected over a longer period of time.

Onerous lease assessment

The Group's business model is to lease data centres, and as such the Group is committed to lease rentals and certain other costs of ownership.  As such, the Group needs to achieve a certain level of rental income from tenants over the life of the data centre lease such that revenue received will exceed costs.  If this is not the case, then the data centre lease rental contract could be onerous. 

In order to calculate onerous lease obligations the directors are required to estimate the future tenancy profile of a data centre, which is inherently judgemental as the unexpired terms of the leases for nine years and the estimate may vary as a result of changes in the utilisation and price of a data centre's space.

Impairment of property, plant and equipment

The Group assesses whether there are any indicators of impairment for all non-financial assets at each reporting date. Non-financial assets are tested for impairment when there are indications that the carrying amounts may not be recoverable.

When value in use calculations are undertaken, the directors are required to estimate the expected future cash flows from the assets or cash generating unit and choose a suitable discount rate in order to calculate the present value of those cash flow. The estimate may vary depends on the market interest rate, utilisation and price of the data centre space. 

Deferred tax asset recognition

The Group recognises deferred tax assets to the extent that it is probable that taxable profits will be available to utilise the asset. At each balance sheet date, the Directors review the forecast taxable profits of the Group to assess the recoverability of the deferred tax asset.  To the extent that it is no longer probable that sufficient taxable profits will be available, the carrying amount of the deferred tax asset is reduced. 

2.       Revenue recognition and contract accounting

Revenue represents amounts receivable for work carried out in the rental of data centre space (including reimbursement for electricity consumed by customers), design and development of data centre facilities, the maintenance of data centres and imputed interest on loans to data centre developers.

Revenue from contract works is recognised in the Consolidated Statement of Comprehensive Income based on the stage of completion which is determined based on the contract costs incurred for work performed to date in proportion to the estimated total contract costs.

Revenue on design and development activity is recognised over the period of the activity and in accordance with the underlying contract.  Revenue is measured by reference to the fair value of consideration received or receivable from customers. Cost overspends on design and development are recognised as they arise and cost under-spends recognised when it is known with reasonable certainty, the final position of the relevant contract. Where design and development projects are in progress and where sales invoiced exceed the cost of work completed, the excess is shown as deferred income, within other financial assets.  When it is probable that total fit-out costs will exceed contract revenue, the expected loss is recognised as an expense immediately.

Income from support and maintenance agreements and the rental of data centre space is recognised on a straight line basis over the period of the related activity.  Data centre space is rented out under operating leases.   

3.       Segment reporting

         The Management regularly reviews segment information based on the key products and services provided to its customers; rental of data centre space, maintenance (including) support of data centres, and the design and development of data centre facilities.

4.       Onerous leases

The Group's business model is to lease data centres and commit to lease rentals and certain other costs of ownership.  As such, the Group needs to achieve a certain level of rental income from tenants over the life of the data centre lease such that revenue received will exceed costs. 

The provision of onerous leases in the financial statements represents the present value of the future lease payments that the Group is presently obliged to make under non-cancellable operating lease contracts, less revenue expected to be earned on the lease. The estimate may vary as a result of changes in the utilisation of the data centres. The unexpired terms of the leases is nine years with an option to extend by an additional 16 years.     

5.       Earnings per share

The calculations for earnings per share, based on the weighted average number of shares, are shown in the table below.

The number of ordinary shares for diluted earnings per share is the weighted average number of ordinary shares of CSF Group plc that would have been in issue. The calculation of the diluted earnings per share does not assume conversion, exercise or other issue of potential ordinary shares that would increase the net profit or decrease the net loss per share. As the Group is currently in a loss making position the inclusion of potential ordinary shares associated in the diluted loss per share calculation would serve to decrease the net loss per share. On that basis, no adjustment has been made for diluted loss per share.

6.       Dividend

The Board does not propose any payment of dividends in respect of the current financial year. 

7.       Contingencies 

          The Group holds a number of guarantees with various banks in respect of banking facilities as follows:

8.       Non-adjusting event after the financial year-end

          On 27 September 2017, the Group entered into a Sale and Purchase Agreement to dispose of its entire equity interest in CSF CX Sdn Bhd ("CSF CX"), a wholly-owned subsidiary, for a cash consideration of RM2.00 ("Conditional Disposal"). The Board expects that the completion of the Conditional Disposal will improve the Group's financial position, principally due to the elimination of the net liabilities of CSF CX and the elimination of the Group's obligations on the leases payable, and the return of cash deposits pledged for banking facilities and rental deposits (approximately up to RM6 million (£1.1 million*)) in connection with the CX2 and CX5 data centres.  

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