Purportedly for health reasons but other factors possibly in play too
Full-year results see a RM32.8m loss against net profit of RM43.7m in 2012
JUST two months after painting a rosy picture of the future of CSF Group Plc, founder Adrian Yong (pic) has surprisingly stepped down from his role as chief executive officer of the data centre company he spent over 12 years building.
In a July 25 announcement posted on its website, the company, which is publicly listed on the United Kingdom’s Alternative Investment Market (AIM), said Yong was stepping down with immediate effect for “personal health reasons.”
Curiously, the statement from CSF has Ting Heng Peng, the non-executive chairman, wishing Yong well in “all his future endeavours” rather than wishing him a speedy recovery.
Digital News Asia (DNA) has reliably learnt that Yong is in robust health and currently taking a break in Nepal. Yong declined to comment when DNA reached out to him through email beyond saying, "It has nothing to do with the accounts."
The health of the company, however, is less robust as when it finally released its full-year results on Aug 7, it reported 2013 group revenue was down to RM143.1 million (£30.5 million) from the RM208 million (£44.3m) reported in fiscal 2012); as well as a net loss of RM32.8 million compared with net profit of RM43.7 million in 2012.
The loss is mainly attributed to the company making a full allowance for doubtful debts in respect of the outstanding amounts owed by two of its customers. The total allowance for doubtful debts for the current year amounts to RM37.6 million as compared to RM4 million for 2012.
A less conservative management may have written off part of the debt but this way if any is paid then it is a bonus. "It also means that the loss can be blamed on the previous management," notes Andrew Hore, Editor of AIM Journal, a monthly magazine focusing on London's AlM Market.
At the same time, the company also shared the initial phase of a strategic review it commisioned which identified three key strategies to be implemented by management. Curiously one of them is the rather basic recommendation to strengthen sales and marketing.
It is not clear what role the poor results and strategic review played, if any, in Yong’s abrupt departure. But Hore, tells DNA that companies tend to use poor health in announcements when directors leave even though they may have been sacked.
"It is normally a way of being kind. Some people do have to resign because of bad health but I would not be surprised if it was not strictly true in the case of the CSF CEO. The business has been doing badly. The other investors quite obviously lost patience with him and even though I think he owned 27% of CSF there was enough pressure to get him off the board."
CSF had given a hint of what was to come when in a March 27 announcement, the company advised that RM33 million (US$10.2 million) of revenue related to two key tenants of its data centres in Cyberjaya, Selangor, will likely not be collected and thus have a material impact on its performance.
[RM1 = US$0.31]
Specifically it said, “the directors believe that revenue and profits associated with these tenants in its financial statements for the financial year ending March 31 2013 will most likely have to be provided for in full and will lead to a significant reduction in the company’s profit expectations for the financial year ending March 31 2013 and the following year.”
Because of this, CSF decided to suspend developing its Singapore data centre and delay another one it calls CX8, believed slated for Cyberjaya where it already has four data centres. This decision in turn will lead to a significant reduction in the design and development revenue of the company going forward.
An example of this can be gleaned from its 2013 statement where it explains that a decrease in revenue from the design and development of data centre facilities was
mainly attributable to a decrease in the works carried out on its latest data centre called CX5. The Group recognised revenue of RM16 million from project management and fit-out works relating to CX5 for the current financial year as compared to RM110.1 million in 2012.
While DNA had reported in June that CSF makes money from renting out its data centre facilities to customers, it also captures revenue from the building and installation of its data centres through its subsidiary companies, rather than have independent parties build its data centres.
Its 2012 annual report lists such related party transactions of RM58.9 million in 2011 and RM90.6 million in 2012. Specifically it gave CSF Advisers Sdn Bhd advances of RM58.9 million in 2011 and RM83.1 million in 2012. CSF CX Sdn Bhd received advances of RM5.8 million in 2012 while CSF Asia Pte Ltd received RM1.9 million.
CSF CX and CSF Asia build and then rent out data centres on a tenancy basis, while CSF Advisers provides on-going support and maintenance of data centres.
DNA has learnt that the board has also not been too pleased with the performance of the company with its share price down to its lowest ever as of Aug 7 at 0.105 pence. Its high was 80 pence back in 2011.
As a result, it made a string of announcements on July 25 starting with Ting, its non-executive chairman who will temporarily move to non-executive director. Phil Cartmell will assume the role of interim chairman for a six-month period.
Cartmell will be responsible for overseeing the appointment of a new CEO and executive management structure whilst ensuring the company’s commercial and strategic development remains unaffected.
He will be supported by a committee which has been formed to manage the day-to-day operations of the company. The committee, which will include sales, operations and finance divisions, will be headed by Michael Leong, director of corporate development. Leong will report directly to Cartmell and the board of directors.
Commenting on this, Hore says that the fact that Cartmell has taken over as chairman suggests that the nominated adviser/remaining institutional shareholders feel they need someone to make sure the problems are sorted out.
"Cartmell has gone into a number of quoted companies and taken over the reins when the previous boss has left or the investors want to ease them out," notes Hore who adds that Cartmell has to shoulder some responsibility too for what has happened since he was on the CSF board since around the time of its listing.
It is not clear if Yong’s departure will have any impact on any targets or plans set for the data centre and shared services and outsourcing sector under the Economic Transformation Plan. CSF is considered a key player in Malaysia’s push to be a data centre hub as it already owns 406,000 sq ft of gross lettable space in the country with a further 120,000 sq ft in Jakarta through a joint venture.
"It's a shame that he has left under a cloud, as he was one of the leaders in our data centre market," says an outsourcing player. Indeed his peers will be watching to see what Yong will do next. For that, he has plenty of time and space amidst the soaring peaks of the Himalayas to clear mind, body and soul before coming back to see how his reputation holds in light of his abrupt departure from the company he built over the past 12 years.
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