ASG net profit drops $26.7 million

ASG net profit drops $26.7 million

With some contract wins under its belt, ASG expects to return to a net profit during FY14.

IT services provider ASG Group (ASX:ASZ) has seen a net profit decline of $26.7 million, mainly driven by a $17.7 million impairment charge related to restructuring its balance sheet.

The impairment charge relates to ASG making changes to its service offerings under its view that there’s a worldwide trend moving away from traditional IT services towards new approaches, such as Cloud services.

“There was a need to aggressively seek strategic change in what we offer our clients and the way we service their needs,” ASG chairman, Ron Baxter, said in his chairman’s letter to the ASX. “These actions have been underway for some time and we specifically devoted significant human and financial resources to this objective. These initiatives have strongly influenced our priorities and financial results.”

“The evidence is now clear globally that all manner of traditional IT business models are struggling and need to change.”

Baxter said while it was investing in fundamental changes to its service offerings, it was also pursuing large managed service contract opportunities.

“Although well positioned for a number of these opportunities, a change in business and political imperatives for clients saw the awarding of contracts postponed or withdrawn,” he said. “The pursuits of such opportunities are resource intensive over a long period.”

Revenue rose to $152.5 million from $150.3 million in the previous year. EBITDA dipped to $19.9 million from $20.6 million.

In February, ASG achieved annualised savings of $8 million, and during the fourth quarter it managed to generate $1.4 million in profit and EBITDA of $3.7 million, which it states is an encouraging result as it enters the 2014 financial year with some contract wins under its belt. The company expects to return to a net profit during FY14.

ASG managing director, Geoff Lewis, said part of the restructure involved cutting its corporate overheads, recalibrating its operations to be more efficient and implementing conservative accounting policies to accurately reflect its business model.

“ASG is a significantly more effective company as a result. Further evidence of this is the unprecedented $86 million in agreements signed in the first quarter of FY14,” Lewis said.

Since June, ASG has landed a number of deals including Clough and the Western Australian Department of Housing.

“Given the financial strength we saw in the last quarter of FY13, the traction we’re achieving in the marketplace since June, plus our increased accountability and balance sheet strength, we have a sound platform for increased profitability in FY14 and beyond,” Lewis said.

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Tags ASG Groupfinancial resultsGeoff Lewis

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