Full Year Results - 30 June 2011 · consulting & managed services cloud virtualization communications data centre consolidation security & identity management operational learning

SMS Management & Technology Limited

Full Year Results - 30 June 2011

Tom Stianos, Chief Executive Officer

Rick Rostolis, Chief Financial Officer

17 August 2011

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Company Background – About SMS

$306m R E V E N U E

1,700+ Experienced Professionals

Hong Kong

Vietnam

Singapore

Australia Melbourne (Head Office)

Sydney

Brisbane

Canberra

Adelaide . . . .

. .

.

.

1

Established in 1986

Blue chip clients with multi-

year relationships

Full service end-to-end

provider

Consistent performance

Reliable dividend history

Access to Asian markets

$351m contract sales in FY11

Australia’s leading Management & IT services firm

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Highlights

2

Revenue $306.1m, up 23.6%

• Broader service offering delivers market share gains

• Expansion into Asian market provides opportunity for further growth

• National practice structure establishes framework for cross-selling of

specialised capabilities and foundation for scale benefits

EBITDA $42.2m, up 10.8%

• Prime margins maintained despite skills shortages and cost pressures

• EBITDA margin impacted by:

− Lower utilisation of billable resources due to strong recruitment activities

− Delayed sales by recently acquired Renewtek business

Improved performance in recent months supports investment decision

− Queensland floods

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Highlights – continued

Total staff numbers (FTE)* of 1,675, up 22%

• Head count exceeds 1,700 as at 30 June 2011

Earnings per share of 44.3 cents, up 5.7%

Strong cash and balance sheet position

• Zero debt

• $24.9m cash balance

Increased full year franked dividend to 30.0 cents per share, up 3.5%

3

* FTE includes M&T Resources contractors (averaged over last 6 months)

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EBITDA and EPS Growth

4

EBITDA

Basic

EPS (cents) 18.8 28.1 38.2 36.7 41.9 44.3

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Market and Trading Conditions

Healthy demand for services in certain industry segments

• Financial Services, Resources & Infrastructure, Transport and Utilities

• Investment in capacity expansion has provided sales uplift

− Introduction of Infrastructure Consulting & Managed Services practice (IC&MS)

Aggressive recruitment has counteracted supply constraints

• Staff attraction, retention and development initiatives assisted with increased

competition for skilled resources

Competition and pricing pressures have been managed to protect margins

• Specialisation and practice structure have underpinned prime margins

• Focus on increased utilisation of billable resources to drive operational efficiency

improvement

$351m in sales against $280m in 2010 is indicator of future demand

5

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Revenue by Industry Segment (prior year)

6

Negligible exposure to SMEs, Retail and Manufacturing

Growth in Financial Services, Resources & Infrastructure, Transport and

Utilities

Federal and State Government demand impacted by elections

Recent project wins have led to 2H improvement in ICT

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Staff Numbers (FTEs)

7

June

2011

June

2010

Billable

Permanent Consultants 1,130 852

M&T Resources * 347 352

1,477 1,204

Non Billable

Sales, Admin & Management 198 168

Total 1,675 1,372

* Represents 6 month average FTEs (January 2011 – June 2011)

Competition for quality resources remains a key challenge

457 Visa program complements strong internal referral process

Additional 80 billable resources through acquisitions

Sources of Recruitment

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Financial Performance

8

$m June

2011

June

2010

Change

%

Revenue from services 306.1 247.6 23.6

EBITDA 42.2 38.1 10.8

Depreciation (0.9) (0.4) (94.3)

EBIT 41.3 37.7 9.5

Net interest income 0.3 0.8 (55.8)

Tax (11.8) (10.6) (11.3)

NPAT 29.8 27.9 7.0

EBITDA margin (%) 13.8 15.4

Basic EPS (cents) 44.3 41.9

Diluted EPS (cents) 42.7 40.7

Full year dividend (fully franked) 30.0 29.0

Revenue growth:

• Financial services, Resources,

Transport and Utilities

• Introduction of National Practice

structure

• Asian expansion

• Acquisitions contributed $10.3m

Prime margins steady:

• Broadened/differentiated service

offering

• Efficient staff resourcing mix

EBITDA impacted by:

• Lower utilisation of resources

• Delayed sales by Renewtek

• Queensland floods

• Investment in national practices

Increase in depreciation due to

introduction of ERP system

Net interest income impacted by

increased working capital

requirements

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Summary Financial Position

9

$m June 2011 June 2010

Cash 24.9 31.0

Trade receivables and work in progress 64.2 52.3

Debt Nil Nil

Net tangible assets (NTA) 42.7 47.4

NTA per share (cents) 63 71

Debtor days 38 36

Lock up days (WIP and debtor days) 69 70

Strong balance sheet maintained

• Zero debt

• Change in certain credit terms has impacted on trade receivables

Asian expansion and investment in national practice structure has required

additional working capital

NTA in line with expectations given intangibles associated with acquisitions

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Cash Flow

10

$m FY11 FY10

EBITDA 42.2 38.1

Change in working capital (12.7) (2.3)

Net interest received 0.7 1.2

Tax paid (11.5) (8.8)

Other 1.3 1.3

Net operating cash flow 20.0 29.5

Capital expenditure (1.3) (2.0)

Dividends paid (20.2) (18.3)

Acquisition payments (4.1) (4.7)

Other (0.5) -

Net cash flow (6.1) 4.5

Cash on hand 24.9 31.0

Working capital impacted by:

• Revenue growth

• Asian expansion

• Investment in national practice

structure

• Funding lag - recruitment to billing

Capital expenditure primarily

relates to investment in hardware

and ERP system

Net interest impacted by working

capital requirements

Acquisitions made during the

year:

• Renewtek

• Microgenx

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Dividend

11

Consistent and reliable returns

Final dividend of 16.5cps

• Record date - 30 September 2011

• Payment date - 28 October 2011

Full year dividend of 30.0cps, up

3.5% on pcp

100% franking for Australian

shareholders at 30% tax rate

Target payout ratio of 65-70% of

NPAT going forward subject to

capital initiatives

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SMS Consulting position in business

services and project management ideally

suited to pull through specialist

downstream services

IT Consulting

Business Process Outsourcing

Application Managed Services

Infrastructure Managed Services

Software (packaged, incl. maintenance)

Hardware (incl. maintenance)

Development & Integration

$1,921m

$2,616m

$3,733m

$3,308m

$5,884m

$13,013m

$3,775m

Strong

Strong

Future Opportunity

Future Opportunity

New practice

launched FY12

The Australian IT Market

SMS currently contests a $5.7b

subset of this market. Potential

to contest other segments (e.g.

Infrastructure, Managed

Services) through further

acquisitions or organic growth

Source: Gartner, IBIS and IDC market forecasts for 2011

SMS focus

12

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Market Positioning

SMS Management & Technology services the market and services ‘sweet spot’ as illustrated below:

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Client Value Proposition

Your vision. Delivered.

Respond Quickly & effectively

Deep expertise in specialist

areas

Make it easy for

our clients

Commit-ment to delivery

excellence

Pledge # 1: SMS pledges to

respond in a timely manner, and to

mobilise a capability specifically

tailored to meet your needs

Pledge #3: SMS pledges to always

act with integrity and in the best

interests of our clients. We will take

account of your circumstances to

make it easy for you to work with us

Pledge #4: SMS pledges to

always keep our promises and

commitments, and to apply

processes that ensure your

vision is delivered

Pledge #2: SMS pledges to

ensure you have access to

the full depth and breadth of

our expertise and specialist

capability, and that this is

brought to bear on all

projects big and small

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Growth Strategy

Build on our reputation to gain market share:

• Differentiated business model occupies ‘sweet spot’ between global and

niche local competitors

Organic growth via specialised and differentiated practice structure:

• Provides margin expansion

• Greater breadth of coverage/share of industry spend

Leveraging operational efficiencies through:

• Ongoing management of headcount and utilisation, improved operational /

reporting processes and systems

Acquisitions not used to bulk up but focused on:

• Customer and capability extension, geographic expansion, niche

opportunities

Focus on exploiting market growth drivers

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Market Growth Drivers

16

Cloud

Customer

centricity Business

analytics

Asia

expansion Resources &

Infrastructure

SMS

today

Business

transformation

Key Areas of Focus

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Practices and Regions

A robust and scalable business

Apps

Dev

Practices: Operate nationally

Leverage market channels from all regions

Own Technology Partner relationships

Build and manage intellectual property

Professional development and career

progression for consulting teams

IDM

BPI

OpLC

PPS

CRM

SI

Allows for rapid

integration of

future acquisitions

Ability to service other geographies from regional

hubs without the need for additional fixed offices

Regions: Focus on gaining market share in the region and

meeting client demand

Manage client relationships

Draw on capability of any practice resident

anywhere to meet market demand

Aggregate and bundle multiple practices

Client need / market demand

Regions

IC &

MS

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SMS Management & Technology – Practices

APPLICATION DEVELOPMENT

CUSTOM SOFTWARE DEVELOPMENT

PORTALS

ENTERPRISE CONTENT MANAGEMENT

ENTERPRISE SEARCH

SYSTEMS ENGINEERING

BUSINESS PERFORMANCE IMPROVEMENT

IT STRATEGY & ARCHITECTURE

CUSTOMER EXPERIENCE

PROCESS IMPROVEMENT

BUSINESS TRANSFORMATION

BUSINESS ANALYSIS

CUSTOMER RELATIONSHIP MANAGEMENT

CUSTOMER STRATEGY

BUSINESS SOLUTIONS

CHANNEL MANAGEMENT

CUSTOMER INFORMATION MANAGEMENT

PACAKGED APPLICATION DELIVERY

INFORMATION & DATA MANAGEMENT

ENT. INFORMATION MGMT

ENT. DATA WAREHOUSE

BUSINESS INTELLIGENCE

MASTER DATA MGMT

DATA QUALITY & REMEDIATION

INFRASTRUCTURE CONSULTING & MANAGED

SERVICES

CLOUD

VIRTUALIZATION

COMMUNICATIONS

DATA CENTRE CONSOLIDATION

SECURITY & IDENTITY MANAGEMENT

OPERATIONAL LEARNING & CHANGE

CHANGE MANAGEMENT

LEARNING STRATEGY & PROCESS

TRAINING & SUPPORT PROGRAMS

LEARNING TECHNOLOGY

PROGRAM & PROJECT SERVICES

PORTFOLIO ESTABLISHMENT & OPTIM.

BENEFITS MANAGEMENT & REALISATION

PROGRAM, PROJECT & PMO DELIVERY

REVIEWS, RECOVER AND MATURITY ASSESSMENTS

SYSTEMS INTEGRATION

INTEGRATION SOLUTIONS

BUSINESS PROCESS MANAGEMENT

AGILE COACHING

LEGACY TRANSFORMATION

QUALITY & TESTING

M&T RESOURCES

PERMANENT & CONTRACT

RECRUITMENT

18

DELIVERY CAPABILITY UPLIFT & COACHING

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Sales Pipeline Analysis

19

Category of sales ($351m)

Current Clients

Extension of current contracts 41%

Follow-on work from prior project 24%

New business with current clients 24%

New Clients 11%

Demand and pipeline

Sales (value of contracts signed during FY11) $351m

FY11 Revenue $306m

Growth in sales pipeline

with current clients

indicates strength of

relationships

Sales:Bill ratio 1.15

New business growth

(current and new clients)

reflects success of

specialist practices in

broadening service offering

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Outlook

20

Q1 indicates continued demand for services in certain segments

• Financial Services, Resources & Infrastructure and Transport

• Revenue from ICT expected to increase

Uncertain economic environment

Key growth areas of focus (FY12 and beyond)

• Business Analytics

• Customer Centricity

• Business Transformation

• Expansion into Asian markets

Consolidation of National Practices – aim to increase utilisation of billable

resources

Supply of skilled resources will continue to be a key issue to manage For

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