CSG reports “very disappointing” first half FY17 results

CSG reports “very disappointing” first half FY17 results

Business solutions division losses and under-performing sales teams lead to 18 per cent earnings drop

CSG managing director and CEO, Julie-Ann Kerin

CSG managing director and CEO, Julie-Ann Kerin

ASX-listed IT managed services provider, CSG (ASX:CSV), has announced its financial results for the half year ending 31 December 2016, with the company’s managing director and CEO, Julie-Ann Kerin, describing its lackluster results as “very disappointing with revenue below expectations”.

In a statement on the ASX, the company declared revenue of $120.7 million, representing three per cent growth relative to the prior corresponding period, an NPAT of $8.3 million, representing a 14 per cent increase, and underlying EBITDA of $14.1 million, representing a 18 per cent slide from the same time last year.

It said its Business Solutions business had “disappointing revenue growth” of three per cent relative to the prior corresponding period, even though its technology sales performed well, adding about 3100 subscription seats in the half.

It mentioned the biggest challenge was a decline in equipment sales, driven by the “underperformance of the sales team”, partially impacted by changes to its sales management structure during the half year.

“Our sales staff are being given further training in 2H FY17 to enhance productivity… CSG has now completed transforming the sales tram in Business Solutions, which included the replacement of underperforming sales staff and the addition of more sales staff to deepen geographical coverage,” the company said.

In addition, the company has commenced the restructure of its Business Solutions business in New Zealand, to increase efficiency in line with the Australian Business Solutions. Together, CSG estimates these cost initiatives to deliver $5 to $6 million in cost savings per annum from FY18 onward.

CSG's Enterprise Solutions division achieved revenue growth of six per cent, $10 million lower than what the company predicted.

It attributed this to delays in the sales cycle but said major wins for that half included managed print contracts with a local representative council in New Zealand (BOPLASS) and with an Australian government health board, and additional print sales as part of an existing contract with the Queensland education department.

Its Finance Solutions division closed at $259.7 million, with the company saying the amount remained flat as compared to 30 June 2016. It said CSG continues to convert more than 95 per cent of its customers to CSG Finance products.

“Despite this, we will continue to have confidence in the product and service offerings we have built for customers and we believe that our Technology-as-a-Subscription strategy will deliver growth for our shareholders. We are seeing a strong take up in subscription seats, which are forecast to exceed 17,000 by the end of FY17,” Kerin said.

In December last year, CSG signed an agreement with Officeworks, to sell Technology-as-a-Subscription, designed to increase market adoption of solutions across print, communications and desktop channels. CSG also aims to increase its Technology-as-a-Subscription sales to new, non-CSG customers.

“With an addressable market of almost 200,000 SMEs in Australia… this channel will allow CSG to penetrate the broader market and to capitalise on first-mover advantage.”

The company also highlighted its recent acquisition of Brisbane-based managed IT services company, R&G Technologies, for a total purchase price of $6.6 million, which it says will expand its managed services and cloud IT services capability.

“The acquisition will also provide CSG with large, referenceable customers, which will assist with new enterprise wins,” it stated.

For the FY17 financial year, CSG forecasts a revenue in the range of $250 to $275 million (a one per cent drop to 12 per cent growth on FY16); an underlying EBITDA on the range of $30 to $36 million (a 21 per cent to six per cent decline from FY16); and an EBITDA loss of $3 million as a result of the launch of its direct sales channel in Business Solutions (to be expensed in FY17).

At the time of writing, CSG’s shares were trading at $0.50.

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