Consulting Technology

Company announcement

Tuesday, February 18th, 2014

FY2014 Half Year Headlines

• Revenue $81.1m (down 3.3% on the prior corresponding period), EBITDA of $6.9m (down 5.4% pcp), NPAT of $4.1m (down 9.5% pcp), diluted EPS of 4.5 cents (down 8.2%).
• Total production effort increased by over 6% on the pcp reflecting an overall increase in market share.
• Outside of the ACT and NSW, all operating locations have had modest revenue growth. NSW and ACT markets have been most impacted by constrained spending, continuing project delays and deferrals by clients.
• The Federal Government continues to work through changes post election. However, the view of future IT services requirements is well aligned to the new Oakton service model, with some recent wins and sales pipeline growth supporting this positioning.
• Sales in H1 FY2014 up 17% on the pcp contributing to booked and committed revenue at 75% of current FY2014 full year revenue forecast (pcp 71%). Backlog into FY2015 and beyond is at $51m ($43m pcp).
• Ended December 2013 with 1,106 total staff (up 39 pcp). India at 283 staff (up 82 pcp). On shore staff numbers have marginally reduced from June 2013 via natural attrition and targeted separations required to change the mix of capability onshore.

• Hyderabad will soon have the largest staff numbers of all operating locations with production (billable) hours from this location in H1 FY2014 increasing to 25% of total production (pcp 19%). This increase continues to reduce revenue and profit per FTE, however, the price point for our solution development and customer delivery is enabling market share growth.

• Employee satisfaction across the Group remains above industry averages and attrition is 15% below the pcp.
• Interim fully franked dividend of 4 cents (down 16% pcp).
• Operating cash flow (before interest and tax) of $2.68m impacted by increasing WIP associated with larger projects (including managed services) and timing of milestone payments.
• Market demand continues to increase in areas of digital customer and partner engagement solutions, information management solutions leveraging new data sources from social platforms and core system capability with a strong focus on delivery of these solutions in cloud based "as a service" models.
• Continued investment in the Oakton Cloud capability and the Solutions business supporting growing demand for cloud based "as a service" delivery models, including an increasing number of partnerships with "as a service" infrastructure and software providers. This has seen a 50% increase (pcp) of Non Person Revenue (NPR) in H1 FY2014.
• Re-appointed to Telstra IT PSA panel, with the reduced panel size providing opportunities to expand our services footprint.

• Opened new offices in NSW and WA along with refurbishment of our Hyderabad and Managed

Services centres
Australian consulting and I.T. services provider Oakton Limited [ASX: OKN] today announced a net profit after tax of $4.1 million for the FY2014 half year ended December 2013 - a 9.5% decrease on the results from the previous corresponding half year period. Revenue was down 3.3% to $81.1 million and EBITDA decreased by 5.4% to $6.9 million.
The Oakton Board declared a fully-franked interim dividend of 4 cents per share. The dividend will be paid on the 6th May 2014 with a record date of the 28th February 2014.
Neil Wilson, Oakton's Managing Director and CEO, made comment on the result:
"Market conditions during the first half of FY2014 again remained challenging across all industry sectors. In particular, there continues to be a large number of project deferrals and delays by clients in all sectors. Based on the current pipeline and Q2 sales, we expect an improved performance in the second half.
It is pleasing to note that, outside of NSW and ACT (which again has been impacted by reduced Federal Government spend), operating performance has shown modest revenue growth. Our production effort has grown again, by 6%, over the pcp reflecting an overall increase in market share. The long term investment in our off shore facility in Hyderabad is again making a significant contribution to our performance and our strategic positioning, with their share of total production up to 25% (pcp 19%). In particular, our ability to meet reduced price expectations from our customers has enabled us to maintain and improve market share in a number of sectors. Also of note is our investment in the generation of non-person based revenue, including Oakton Solutions as a service and other "cloud" related service models. This investment has enabled us to increase revenue from these sources by 50% over the pcp.
Our strategic positioning is now generating larger projects with longer term annuity revenue streams. Reflecting this, the level of booked and committed revenue for FY2014 is ahead of last year's level, with sales in the H1 up by 17% over the pcp. Our cash flow performance has primarily been impacted by timing of
milestone payments on some engagements. The transition to larger and longer projects will have some
medium term impact on cash flow. We currently expect cash flow to improve in the second half.
Current expectations are for continued growth in off shore effort and overall production for FY2014, with 2H
earnings to be ahead of both the pcp and H1.
We continue to invest in the business to ensure our service offer remains relevant to our customers' evolving requirements. Our mature off shore capability, deep specialisation and project/managed service engagement approach are now enabling a shift to a service integration and solution delivery as a service business model. This is becoming increasingly important as many cloud based business and technology services emerge and require careful integration and operation.
The investment in the business over the last few years has established a platform for an on-going increase in market share which should accelerate under improved market conditions and with the new non-person based revenue streams which are not as linear as traditional headcount growth models.
I would like to take this opportunity to thank our outstanding team at Oakton in both Australia and India for their contributions over the past six months. We have the best team to enable us to continue on our growth strategy in the future. I would also like to thank our customers, partners, shareholders and the wider investment community for their ongoing support and interest in our company"
Please find attached the results and outlook presentation that will be presented to the investment community over the following two weeks.
Further information:
Neil Wilson, Managing Director and CEO John Phillips, Chief Financial Officer
Tel: +61 3 9617 0200

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