CSFG.L Regulatory News (CSFG)

For Immediate Release 26 September 2014

CSF Group plc

("CSF" or "the Group")

FINAL RESULTS

For the Year Ended 31 March 2014

CSF Group (AIM: CSFG), a leading provider of data centre facilities and services in South East Asia and the largest provider of data centre services in Malaysia, today announces full year results for the year ended 31 March 2014.

Financial highlights:

· Group revenue at RM103.5m (£19.0m*) (FY2013: RM143.1m (£26.3m*)).

· Loss before tax at RM129.8m (£23.9m*) (FY2013 loss before tax: RM30.2m (£5.6m*)) due to lower data centre revenue at RM61.9m (£11.4m*) (FY2013: RM102.6m (£18.9m*)) driven by:

o Provision of onerous leases of RM62.5m (£11.5m*) (FY2013: Nil))

o Provision of doubtful debts on advances made to finance the fit-out of data centre

o Operating expenditure of the joint-venture in Indonesia of RM20.9m (£3.8m*) (FY2013: Nil)).

· EPS at loss 82.78 sen (loss 15.23p*) per share (FY2013: loss 20.51 sen (loss 3.78 p*) per share).

· Closing cash position as at 31 March 2014 of RM19.8m (£3.7m*) (FY2013: RM61.9m (£11.4m*)).

Operational highlights:

· Completed Block B fit-out works at CX5 and received repayment of RM20.0m (£3.7m*) in April 2014 on advances to the project owner for the development of CX5.

· Ongoing Block C fit-out works at CX5 data centre which is scheduled for completion by first half of financial year 2015.

· Completed the sale of its investment in PT Cyber CSF in May 2014 - resulting in cost savings of more than RM0.5m (£0.1m) per month.

· Good progress on new data centre rental - new tenancy contracts were secured for some of the capacity at CX5.

· Currently pursuing a pipeline of potential customers alongside ongoing development and marketing activities for CX2 and CX5.

* The translation of the financial statements into 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 Ringgit Malaysia into pounds Sterling at the rate prevailing on 31 March 2014 of RM5.4336 : £1.00. This translation should not be construed as meaning that the Ringgit Malaysia amounts actually represent, or have been or could be translated into the stated number of pounds Sterling.

For further information:

CSF Group +603 83181313

Phil Cartmell, Interim Chairman

Cenkos Securities (Nominated Adviser and Broker) +44 (0) 20 7397 8900

Bobbie Hilliam / Elizabeth Bowman

Buchanan (Financial PR) +44 (0) 20 7466 5000

Jeremy Garcia / Gabriella Clinkard

INTERIM CHAIRMAN'S STATEMENT

Overview of the Year

Despite progress on a number of strategic initiatives during the period, the Group continued to experience a challenging 12 months of trading. As a result, the Group incurred a net loss of RM132.5m (£24.4m*) for FY2014 (FY2013: RM32.8m (£6.0*)) which were mainly attributable to the following one off items;

(i) the operating loss of the data centre rental business (excluding bad debt provisions and provision for onerous leases) of RM28.5m (£5.3m*);

(ii) bad debt provisions of RM16.9m (£3.1m*) comprising a provision for doubtful debts relating to loans and advances given to PT Cyber CSF, the Group's joint-venture in Jakarta, Indonesia of RM20.9m (£3.8m*) - the Group has divested its entire equity interest in the same - net of reversal of provisions for bad debts recovered; and

(iii) provision for onerous leases of RM62.5m (£11.5m*) recognised in the financial current year as a result of the uncertainty as to whether future revenues will be adequate to cover the lease rental and other operating costs of CX5.

The Group had a closing cash position of RM19.8m (£3.7m*) at the year end and approximately RM84.2m (£15.5m*) tied up as working capital relating to the development of CX5. This additional working capital will be collected progressively by the end of FY2015 in line with the completion of the sale of Block B (completed in April 2014) and Block C (expected to be completed by the third quarter of FY2015). To-date, IDCB repaid RM21.6m (£4.0m*) in line with the completion of the sale of Block B at CX5. The Group's cash position as at 17 September 2014 stands at RM40.6m (£7.5m*).

The completion and sale of Block C is contracted between the developer of CX5 (the seller of the facility) and the sovereign fund (the buyer of the facility) and is not dependent on the securing of tenants by CSF.

The Group recorded total revenue of RM103.5m (£19.0m*), a decrease of RM39.6m (£7.3m*) or 27.7%. The decrease in total revenue was mainly attributable to the decrease in revenue from the data centre rental business due to the suspension and/or expiry of certain customer contracts which were subsequently terminated.

Since my appointment as interim chairman to oversee future strategy and the formation of a committee ("the Committee") to oversee the business operations headed by Michael Leong, the Director of Corporate Development of CSF, in July 2013, the following key initiatives have been undertaken:

(i) Closure of Singapore office - resulting in average cost savings of approximately RM0.15m (£0.028m*) per month;

(ii) Completed the divestment of CSF's equity interest in PT Cyber CSF - resulting in average cost savings of approximately RM0.67m (£0.12m*) per month and received RM8.9m (£1.6m*) of net proceed from the disposal in May 2014;

(iii) Commenced discussions with the sovereign fund (the lessor of the CX1, CX2 and CX5 data centres) to request for a reduction in lease rental rates. Although discussions are still ongoing, the Board is cautiously optimistic that the outcome will be favourable; and

(iv) Secured new data centre rental customers contributing additional revenue of approximately RM0.21m (£0.04m*) per month at CX2. The Group also secured a new tenancy contract for approximately 45% of the capacity at CX5 Block B with a first right and option to utilise the remaining 55% of the capacity at Block B and 50% of the capacity at Block C ("the First Right and Option"). The First Right and Option Arrangement does not preclude the Group from entering into tenancy contracts with other customers as long as written notice is given to the counterparty to the First Right and Option;

(v) Submitted an application for a government grant which will enable the Group to seek a partial reimbursement for the capital expenditure incurred / to be incurred in connection with a tenancy contract.

Current Trading and Outlook

The Group's immediate focus remains filling remaining capacity in CX5 data centre and to address the non-renewal of certain tenancy contracts at our CX2 data centre by securing replacement contracts with suitable and credible customers. Given the competitive pressure on data centre rental prices, the Board realises that even if the data centres attain full occupancy, the Group's data centre rental division will operate at a loss based on the subsisting lease rental rates payable to the sovereign fund. Therefore, the initiative to reduce the lease rental rates is absolutely critical to the medium to long term viability of the Group's data centre rental business.

Meanwhile, management continues to pursue the Group's pipeline of design and fit-out customers in order to generate adequate cash flows to supplement the temporary underperformance of the data centre rental segment. The Board will continue to ensure that new developments are undertaken based on thorough commercial assessment and with a high degree of financial prudence.

Within 2 years, the Group has almost doubled its data centre capacity from 205,000 sq ft to 406,000 sq ft and with a significant amount of cash associated with the development of CX5 expected to flow into the Group progressively up to the third quarter of FY2015. However, the lease rental commitments on CX5 are substantial and the Board recognises the urgent need to reduce the burn rate of our cash reserve. The Board will ensure that there is no significant cash outlay other than sums required to cover the committed lease rentals and other necessary operating overheads, subject to any further capital or operating expenditure that may be required in relation to tenancy contracts.

In line with this aim of preserving cash, the Board is not recommending the payment of a dividend. 

The Board and Management aim to achieve controlled and sustainable growth in revenue, EBITDA, earnings per share and operating cash flows. A key part of this will be the generation of greater levels of recurring revenue through a network of resellers and business partnerships which in turn will provide the Group with greater earnings visibility.

Data Centre Projects

CX1, CX2 and CX3

The Group's CX1 and CX3 data centres continued to operate efficiently.

Although CX2's utilization has suffered a decline in occupancy rate to approximately 86% of installed technical power mainly attributable to the downsizing of the data centre operations of certain customers due to the competitive business environment in which they operate.

The Group invested approximately RM1.7m (£0.32m*) during the year to upgrade the data centre capacity of CX2 in order to cater for the increased power capacity requirements of certain customers.

CSF Computer Exchange 5 (CX5)

The development of CX5 - a facility comprising 3 blocks of 5-storey buildings, with a total gross floor area of approximately 580,000 sq ft and approximately 201,000 sq ft of net data centre space together with critical power infrastructure and associated cooling - is progressing on schedule based on the following key milestones:

• Phase 1 - completed the construction of Block A, Block B and Block C together with fit-out of critical power infrastructure and associated cooling for Block A;

• Phase 2 - completed the fit-out of critical power infrastructure and associated cooling for Block B; and

• Phase 3 - the fit-out of critical power infrastructure and associated cooling for Block C by third quarter of FY2015

CSF both project manage and supply and fit-out core infrastructural equipment for the facility. Upon completion of each block, CSF will enter into a long-term lease agreements for the rental of each block.

As mentioned above, the Group recently secured a tenancy contract which requires the Group to procure and fit-out additional equipment amounting to approximately RM13.0m at CX5 Block B. The Group might need to incur additional capital expenditure when the customer exercises its First Right and Option as elaborated above.

In accordance with its financial plan, the Group has up to 31 March 2014, advanced RM78.0m (£14.3m*) to the project owner for the development of CX5 out of which RM30.0m (£5.5m*) was repaid in the previous financial year and RM20.0m (£3.7m*) was repaid in April 2014.

The Group expects the balance of the advances and trade receivables totaling RM62.6m (£11.5m*) as at 17 September 2014 to be repaid progressively by the end of FY2015 in line with the completion of the sale of Block C by the third quarter of FY2015.

CSF Computer Exchange Jakarta (CXJ) in Jakarta, Indonesia

The joint-venture company in Indonesia known as PT Cyber CSF ("Cyber CSF"), in which CSF holds a 49% interest, continues to suffer operating losses. The Board therefore resolved to dispose of the investment. The Group completed the sale of its investment in PT Cyber CSF and received net proceeds of RM8.9m (£1.6m*) in May 2014.

Other opportunities

The Group continues to pursue and identify opportunities to form business alliances with a view of securing large data centre rental and/or development contracts from local and foreign customers.

Data Centre Rental

The Group now has 406,000 sq ft of data centre space after disposing the entire equity interest of PT Cyber CSF in Jakarta, Indonesia (excluding 3,500 sq ft of data centre space in CX4, Hanoi, Vietnam operated by our 20%-owned associate).

A customer had contracted for Block A and the tenancy commenced on 1 April 2012. Due to the delay experienced by the customer in securing a large government contract, the customer requested for a suspension of the contract for Block A for a period of nine months commencing 1 April 2013. On this basis, the Group reserved the right to contract with other potential customers for the space in Block A. The tenancy contract was subsequently terminated.

The Group also secured a new tenancy contract for a significant amount of capacity at CX5 Block B. In order to ensure that we can fulfill the requirements under this contract, we hired a senior executive with experience in managing the site preparation and fit-out of technically advanced data centres - with emphasis on high levels of security and operational reliability of mission critical computing systems. This person will also be able to assist in technical and commercial negotiations with existing and potential customers.

The Board approved the investment in a fibre-optic network connecting CX1, CX2 and CX5 at an estimated cost of RM3.5m (£0.64m*) which will allow the customers of CX2 and CX5 to connect to the internet gateway located at CX1. We believe this investment will improve the quality of internet service to the existing customers of our CX2 and CX5 data centres and ultimately attract more customers into these data centres.

Maintenance

The Group's maintenance revenue remained stable and the management continues to pursue new contracts to enhance our recurring revenue streams. The Group's maintenance division was commendable in meeting the internal key performance indicators which include measurements of efficiency in carrying out scheduled maintenance and also in completing ad hoc requests for services.

Design and Fit-out of Data Centres

As the development of CX5 comes nearer to completion, the Group's design and fit-out division is actively pursuing external projects. Under a new head of sales who was appointed early in the financial year, a reasonable sales pipeline was established for the said division. The Group completed a contract to fit-out a data centre for a customer in Thailand, whereby the Group earned a project management fee of THB16.0m, i.e. approximately RM1.6m (£0.29m*). This project also marks the Group's first significant fit-out contract outside of Malaysia.

The Board and the management recognise the importance of maintaining the Group's leadership position in data centre design and operational standards and in this regard, we have continued to subject our engineers and technicians to regular, structured training programmes.

The Group continues to receive enquiries from potential customers who would like to develop their in-house data centres and is working towards securing these projects.

Closing Remarks

The Board believes the key initiatives already undertaken will yield positive results. In addition, the Group continues to dedicate adequate resources to support the Committee in the implementation of the key initiatives and the performance of contractual obligations to the Group's customers. The Board and the management are fully committed towards increasing the recurring revenue streams of the Group and while lowering its operating costs.

As mentioned earlier, the initiative to reduce the lease rental rates is absolutely critical to the medium to long term viability of the Group's data centre rental business. In this regard, the Board will support the management's efforts in negotiating for more favourable lease rental terms and targets to complete the negotiations by the third quarter of FY2015.

The Board remains focused on protecting the Company's cash position, securing customers for the data centre rental business, and implementing the various cost control and cash preservation measures that have been established.

Management continues to explore opportunities with a number of strategic partners in order to deliver an end-to-end service package to new and existing customers.

CHIEF FINANCIAL OFFICER'S REVIEW

A. Introduction

Several tenancy contracts either expired or were suspended during the course of the financial year resulting in a loss of data centre rental revenue. In addition, the Group made a net allowance for doubtful debts of RM16.9m (£3.1m*) and provision for onerous leases of RM62.5m (£11.5m*). On this basis, the Group reported a lower revenue of RM103.5m (£19.0m*), a decrease of RM39.6m (£7.3m*) or 27.7% from the previous financial year and a net loss of RM132.4m (£24.4m*) compared to a net loss RM32.8m (£6.0m*) in the previous financial year.

We made a full allowance for doubtful debts of RM20.9m (£3.8m*) in respect of the loans and advances to PT Cyber CSF. The Group has divested its entire equity interest in the joint-venture in May 2014. The Group collected approximately RM4.8m (£0.9m*) of trade receivables that were previously considered to be doubtful and consequently, we made a reversal of allowance for doubtful debts of the same amount. On this basis, the net allowance for doubtful debts for the current year amounts to RM0.8m (£0.1m*) as compared to RM37.6m (£6.9m*) for 2013. The provision for onerous leases was made as a result of the uncertainty as to whether future revenues will be adequate to cover the lease rental and other operating costs of CX5.

With the abovementioned expiry and suspension of tenancy contracts, the occupancy rate for CX2 decreased to approximately 86% of installed technical power whilst Block A of CX5 became substantially ''vacant although there were several new customers secured during the year.

As a result of the significant allowance for doubtful debts and provision for onerous leases, the Group registered a loss from operations of RM129.2 (£23.8m*) as compared to a loss from operations of RM30.9m (£5.7m*) in 2013. The loss from operations is analysed in "Loss from Operations" below.

The Group recorded a basic loss per share ("LPS") of 82.78 sen (15.23p*) as compared to a basic LPS of 20.51 sen (3.78p*) in 2013.

B. Financial results

The financial results of the Group are summarised below:

C. Revenue

The Group recorded total revenue of RM103.5m (£19.1m*), a decrease of RM39.6m (£7.3m*) or 27.7%. The decrease in data centre rental revenue was mainly attributable to the expiry and suspension of several tenancy contracts as elaborated above. Maintenance revenue increased by RM0.7m (£0.14m*) mainly due to more ad hoc requests received for repair and upkeep of third party data centres.

Revenue from the design and development division remained unchanged from the previous year as the Group recognised the fit-out revenue of RM16.8m (£3.1m*) for the final phase of the CX5 project and RM15.1 (£2.8m*) in respect of other smaller projects.

D. Gross loss margin

The Group recorded a gross loss margin of 6.84% in the current financial year as compared to a gross profit margin of 21.8% in 2013. This was mainly attributable to the gross loss margin on data centre rentals as tabulated below:

D. Gross loss margin (Cont'd)

The gross loss margin on data centre rental of 32.9% was mainly due to the significantly lower revenue for CX5 Block A and CX2 of RM0.5m (£0.09m*) and RM50.1m (£9.2m*) recognised in current financial year, as compared to RM23.5m (£4.3m*) and RM61.2m (£11.3m*) recognised in the previous financial year.

Gross profit margin on maintenance income increased from 44.3% in 2013 to 56.5% in 2014 mainly due to more ad hoc requests for repair and upkeep of third party data centres which generated higher profit margins. Gross profit margin on design and development of data centre facilities increased from 16.4% in 2013 to 24.5% in 2014 mainly due to more projects secured with better profit margins compared to last financial year.

E. (Loss)/ Profit from operations

The Group registered a loss from operations of RM129.2m (£23.8m*) compared to a loss from operations of RM30.9m (£5.7m*) in 2013 as analysed below:

The higher operating loss incurred in the current year was mainly attributable to the gross loss recorded by the data centre rental division and the provision for onerous leases as described in "Gross (loss) / profit margin" and "Introduction" above. In addition, the Group incurred costs relating to the restructuring of the management and development of a detailed plan to improve the Group's performance amounting to RM1.7m (£0.3m*).

F. Net finance income

The net finance income comprises mainly the interest income receivable on bank deposits stated net of finance cost arising from charges on banking facilities and interest cost incurred on bank borrowings.

Finance income for the current year of RM1.1m (£0.19m*) was similar to that of the previous financial year of RM1.2m (£0.21m*).

Finance cost for the financial year increased to RM1.5 (£0.28m*) from RM0.54m (£0.10m*) in 2013 mainly due to additional banking facilities obtained for the purposes of undertaking fit-out contracts.

G. Taxation

The Group incurred a tax charge for the year in spite of reporting a loss for the year mainly because the non-availability of tax relief on losses incurred by certain companies within the Group including the jointly-controlled entity and the associate.

H. Earnings per share

Basic and diluted loss per share ("LPS") was 82.78 sen (15.23p*) compared to a LPS of 20.51 sen (3.78p*) in 2013. The weighted average number of shares during the year used for basic and diluted LPS calculation is 160,028,667 (2013: 160,028,667).

I. Dividends

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

J. Cash and treasury

The Group recorded net cash used by operations before working capital movements and net finance income / cost of RM27.8 (£5.1m*) as compared to net cash generated of RM11.1m (£2.0m*) in 2013 mainly due to the decrease in total revenue. On this basis, the Group recorded a negative movement in working capital of RM9.3m (£1.7m*) as compared to a positive working capital movement of RM13.8m (£2.5m*) in 2013. The positive working capital movement in 2013 mainly due to the significant collection of trade receivables associated with the CX5 project during 2013 of RM55.0m (£10.1m*) in line with the completion of the sale of Phase 1 of CX5 by the developer, namely Integrated DC Builders Sdn Bhd ("IDCB") to the freeholder. The remaining trade receivables associated with the development of CX5 (Phases 2 and 3) of RM37.2m (£6.8m*) are expected to be collected with the completion of the sale of Block B (completed in April 2014) and Block C (expected to be completed by the third quarter of FY2015).

The gross trade receivables balance increased from RM104.3m (£19.2m*) as at 31 March 2013 to RM107.4 (£19.8m*) as at 31 March 2014 mainly due to delayed payment on some receivables.

The Group's capital expenditure was mainly for the purchase of new equipment to increase the capacity of the CX2 data centre.

J. Cash and treasury (Cont'd)

As at 31 March 2014, the outstanding advances to IDCB amounted to RM47.9m (£8.8m*), out of which RM20.0m (£3.7m*) was repaid in April 2014. IDCB expects to fully repay the remaining outstanding advances progressively by the third quarter of FY2015 in line with the completion of Block B (completed in April 2014) and Block C of CX5.

During the year, additional loans and advances of RM3.0m (£0.55m*) were given to PT Cyber CSF, the jointly-controlled entity in Indonesia to fund its capital expenditure and working capital requirements, bringing the total loans and advances to PT Cyber CSF to RM31.0m (£5.7m*) as at 31 March 2014. As discussed in "Introduction" and "Loss from operations" above, full allowance for doubtful debts was made in respect of the loans and advances to PT Cyber CSF.

On 1 April 2012, the Group completed the acquisition of Third Wave Infrasys Sdn Bhd ("TWSB") for RM5.0m (£0.92m*) payable over 3 financial years. During the year, RM1.2m (£0.22m*) was paid to the former shareholders of TWSB after TWSB met the profit guarantee for the financial year ended 31 March 2013. TWSB has contributed positively to the revenue and profit of the Group in the 2014 financial year and is expected to continue to do so in the future years. The remaining payment of RM1.4m (£0.27m*) and RM1.9m (£0.34m*) will be payable upon meeting the profit guarantee for financial year ended 31 March 2014 and 31 March 2015.

K. Post Balance Sheet Events

The Group completed the sale of its investment in PT Cyber CSF, the joint-venture in Jakarta, Indonesia and received net proceeds of RM8.9m (£1.6m*) in May 2014.

The Group commenced discussion with the freeholder of the CX1, CX2 and CX5 data centres which encompassed a revision of the terms of the lease agreements pertaining to the aforementioned data centres. The discussions are still ongoing, the Board is cautiously optimistic that the outcome will be favourable.

L. Critical accounting judgement and key sources of estimation uncertainty

The areas of critical accounting judgement and key sources of estimation uncertainty are disclosed in Note 4.

M. Going concern

These financial statements have been prepared on a going concern basis. The directors' consideration of going concern and the associated uncertainties are provided in Note 1.

* The translation of the financial statements into 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 Ringgit Malaysia into pounds Sterling at the rate prevailing on 31 March 2014 of RM5.4336 : £1.00. This translation should not be construed as meaning that the Ringgit Malaysia amounts actually represent, or have been or could be translated into the stated number of pounds Sterling.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 March 2014

All results derive from continuing operations.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 March 2014

CONSOLIDATED STATEMENT OF CASH FLOW

For the year ended 31 March 2014

CONSOLIDATED STATEMENT OF CASH FLOW (Cont'd)

For the year ended 31 March 2014

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

PROFORMA

1. General information

The Preliminary Announcement and the final accounts of the Group were approved by the Board of Directors on 26 September 2014. The financial information set out in this Preliminary Announcement does not constitute the Group's statutory accounts for the year ended 31 March 2014 but is derived from those accounts. The statutory accounts for 2014 will be delivered to the Jersey Registrar of Companies in October 2014. The auditors have reported on the 2014 accounts and their report was unqualified but did contain an emphasis of matter as described below.

In forming their opinion on the financial statements, which was not modified, the auditors considered the adequacy of the disclosure made in paragraph (iv) of note 1 and note 5 to this preliminary announcement concerning the Group's ability to continue as a going concern and the basis of calculation of the onerous lease provision.

The Group is forecast to continue to make operating losses and have operating cash outflows for the foreseeable future and the financial projections show the Group needs to complete negotiations with its landlord to reduce the level of lease rental commitments on its data centres in order to have a sustainable business model. The Group's onerous lease provision has been calculated based on management's best estimate which assumes a reduction in the lease rental commitments on its data centres will be agreed. The ability of the Group to complete negotiations to reduce the level of lease rental commitments is inherently uncertain.

These conditions, along with the other matters explained in paragraph (iv) of note 1 and note 5 to this preliminary announcement, indicate the existence of a material uncertainty that:

• may cast significant doubt over the Group's ability to continue as a going concern; and

• may cause the company's future onerous lease obligations to be materially different from the amount provided.

The preliminary announcement does not include the adjustments that would result if the company was unable to continue as a going concern.  

 (i) Basis of preparation

The consolidated financial statements of CSF Group plc, for the year ended 31 March 2014 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 in late 2014. 

1. General information (Cont'd)

(ii) Pro forma balances

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 2014 of RM5.4336 : £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 consolidated financial statements have been prepared on the historical cost basis, except for the valuation of listed investments. The principal accounting policies adopted are consistent with previous financial year.

(iv) Going concern

The Group's business activities, together with the factors likely to affect the future development, performance and position are set out in the Interim Chairman's Statement. The financial position of the Group, its cash flows and liquidity positions are described in the Chief Financial Officer's Statement. 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 2014, the Group's cash and cash equivalents excluding deposits held on behalf of the Employee Benefit Trust stand at RM19.8 million.

The Directors have prepared financial projections, including cash flows, for a period up to 31 March 2017. 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;

1. General information (Cont'd)

● Due to changes in the data centre rental market, current market rentals for the Group's data centre space are below the fixed costs of the Group's data centres. The Group is in active negotiations with the landlord of CX1, CX2 and CX5 to reduce the operating lease payments to a sustainable level, and is confident that a rent reduction will be agreed in the short term;

● The Group received significant cash receipts of RM20.0 million upon the completion of blocks B of CX5 in April 2014 and is to due to receive additional significant cash receipts of RM49.7 million on the completion of block C of CX5, which is expected to complete in winter 2014. This will provide a short term increase in cash reserves, however will increase the level of lease rental payments. Such receipts are governed by legal agreements between the Group, the developer and the freeholder;

● The proceeds received from the disposal of the investment in PT Cyber CSF in May 2014;

● 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. Furthermore, the financial projections show that the Group needs to complete negotiations to reduce the level of lease rental commitments in order to have a sustainable business model and that the cash receipts from IDCB are required to enable the Group to continue to operate within its existing facilities in the short term. The directors note that the receipt of proceeds for block C of CX5 is governed by existing contractual arrangements and that based on the current status of the development and discussions with the freeholder they have no reason to believe that the receipt of proceeds will be subject to significant delay or other issue. The directors believe that they will be successful in negotiating a lease rental reduction and therefore reducing the cost base of the Group to a sustainable level, and that such rental reduction can be achieved without other adverse impacts on the Group. On this basis they continue to adopt the going concern basis. However, there is inherent uncertainty around the timing, amount and other impacts of any lease rental reduction, which is considered to represent a material uncertainty that may cast significant doubt over the Group's ability to continue as a going concern and, therefore, the Group may be unable to realize its assets and discharge its liabilities in the normal course of business.

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 2014. The financial statements do not include the adjustments that would result if the company was unable to continue as a going concern.

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.

The Group advanced cash loans to Integrated DC Builders Sdn Bhd ("IDCB"), the developer of the CX5 data centre. Such loans are either interest free or the effective interest rate is below a fair market rate. The notional interest income on the loan computed based on the difference between the effective rate and a fair market rate is included as a part of the contract revenue receivable by the Group relating to the Group's services in connection with the development of CX5.

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.