Oakton results hampered by slow down in Federal Government spending

Net profit takes a 33.8 per cent drop to $4.5 million
Oakton results hampered by slow down in Federal Government spending

The slowdown in Federal Government spending has been blamed for Oakton’s first half year results ending December 31, which saw net profit drop 33.8 per cent to $4.5 million.

Revenue was also down 1.8 per cent to $83.9 million compared to the previous corresponding period and EBITDA also dipped 29.6 per cent to $7.3 million.

In a statement to the ASX, Oakton (ASX:OKN) managing director and CEO, Neil Wilson, said market conditions during the first half of the financial year were challenging across most industry sectors.

“As the first half progressed, spend from the Federal Government reduced beyond expectations as the impact of the drive for a budget surplus became a priority,” Wilson said. “These pressures have led to a significant reduction in contribution from our ACT location, which has materially impacted our trading performance.”

As a result, Oakton made about 24 staff redundant and Wilson said it would consider a flexible resourcing model in the short to medium term if business picks up beyond its expectations. It currently has 1067 staff on its books.

Outside of the ACT, Wilson said operating performance experienced modest revenue growth. Its Western Australia office experienced growth, maintaining 25 consultants working on WA based assignments, which as added 3 per cent to its revenue.

However, there were a large number of project deferrals and delays by clients across all sectors, he said.

“We expect an improved performance from this location (ACT) in the second half; however the normal cycle of increased demand leading up to the financial year, may be impacted by the September Federal election,” he said.

Pressure from customers to lower pricing will see Oakton expand its offshore capability and capacity. The offshore facility, based in Hyderabad, India was making a significant contribution to its performance, Wilson said.

“Our ability to meet reduced price expectations from our customers has enabled us to maintain and improve market share in a number of sectors,” he said.

The establishment of partnerships with infrastructure providers to help support new cloud service models has contributed about $500,000 to first-half revenue.

“Our mature offshore capability, deep specialisation and project/managed service engagement approach are now enabling a shift to a service integration business model, which is becoming increasingly important as many cloud-based businesses and technology services emerge, and require full integration and operation,” he said.

It is currently projecting FY13 will be in line with FY12, subject to general market improvement and pick up in demand for services in the Federal Government in Q4.

At the time of publication Oakton was trading at $1.26

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Not sure where Oakton can play these days. Professional services companies are a dime a dozen nowadays with little differentiation; and with that you can add the Indian offshore providers also. Oakton has very little revenue or strategy when it comes to Cloud or Managed Services. The need to determine in a hurry where they want to be in the future. 33% drop in profits is massive and very disturbing and should be a wake up to the IT Services sector which is not going to experience any massive growth in the next 12 months with both State and Federal governments cutting IT expenditure as much as they can.

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