UXC, DWS report profit drop

UXC, DWS report profit drop

Service providers profits drop after challenging financial year

Revenue might have been up, but three ASX-listed IT services providers were left with less profit on their balance sheets after a challenging financial year.

In an ASX statement, ICT integrator, UXC, announced full-year net profits to June 30 were $18.85 million, down from $26.48 million the year before. However, the company saw revenue increase from $611.57 million to $715 million.

Earnings across the company’s Business Solutions Group, which provides ICT solutions for government and enterprise customers, dropped by 21 per cent to $28.7 million in spite of an 8.2 per cent increase in revenue to $440 million. UXC blamed the difficult economy and rising costs for the downturn.

“Our first half was very disappointing. We thought the first half would be well-reduced. That’s largely because our turnover kept growing and our overheads kept growing in line with the turnover but our gross margin dropped,” UXC executive chairman, Geoff Lord, told ARN.

One positive was UXC’s takeover of professional services provider, Ingena, in December, which contributed about $4 million in gross earnings in the second-half of the year, Lord said.

“It has formed the nucleus of what we call Professional Solutions and operated according to budget,” he said. “One of the benefits of 2010 is we’ll have two halves of Ingena."

But Lord admitted UXC’s takeover of Getronics Australia in February last year had not run quite as smoothly. “Getronics took a little while to fit into our company.

We needed to build a replacement IT platform for the company. It had been part of a global group,” he said. “Its performance in 2009 was considerably better than 2008 and we think in 2010 it will continue to improve.”

Despite the profits slump, Lord was positive about 2010 and pointed to its second-half 2009 results as an example of its cost-cutting success. Although there were no plans to repeats its November 2008 redundancies, the executive chairman said future decisions depended on whether or not the company made its $800 million turnover target.

“We don’t expect to repeat a very poor half. We think the first half was the aberration,” Lord said.

“The outlook is positive and we’re looking forward at the moment to the year. But it does always depend on the economic cycle.”

ASX-listed services company, DWS, also reported a drop in profit for the year to June 30. Net profit fell by almost 11 per cent, or around $2 million, while EBITDA reduced by $2.5 million. Operating revenue was slightly up by $279,000, however, and the company claimed a strong second half result following the restructure of an underperforming Sydney operation.

Like UXC, DWS’ second-half net profit was almost $1.6 higher than its first half. In an ASX release, the company highlighted a robust balance sheet with no debt, growth in the Melbourne, Adelaide and Brisbane operations, and the appointment of two experienced non-executive directors.

Melbourne IT was also left with less money in the coffers after posting a 20 per cent drop in profits for its first half to June 30. Net profits after tax went down to $6.3 million, while basic earnings per share fell 20 per cent to $0.08. Operating cash was down 41 per cent to $8.1 million. This was against a 21 per cent rise in revenue and strong growth predictions in February.

In its report and investor presentation, the company put most of the blame on a tough economy, its acquisition of Verisign Digital Brand Management Service in May 2008 and greatly shrinking margins due to heavy discounting.

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