Annual General Meeting
November 2013
Ron Baxter
Chairman
Geoff Lewis
Managing Director
Chairman’s Address
FY13 Review
• Year of Strategic Transition driven by
 Highly successful trends in New World, and
 Review of approach to traditional services
• Refocused our business
 Expanded New World solutions
o Early Adopter status
o ASG invested $10.4m in New World ICT
o Reduced overhead costs ($8m in annualised savings)
 Changed accounting policies
 De-risked the Balance Sheet
• By Q4 our measures were working
 Improving margins and cash flow
 EBITDA of $3.7m in Q4 FY13
 Trend continued into H1 FY14
A streamlined, de-risked ASG
• Improved operational performance
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Improved cash flow & profitability
Reduced overhead costs sustained
Restructured banking facility (maturing June 2018)
Reduced bid costs through a strategic approach to sales
Refocused ‘dual strategy’ approach to sales (New World + traditional)
• Customers are responding to our renewed discipline and focus
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Historic $101m in new contracts negotiated in Q4 and signed in H1 FY14
All managed services contracts ending in FY13 were renewed
• Positioned to expand without further investment in fixed overheads
• Differentiation between ASG and local competitors is evident
• Corporate transactions
 Data Centre
 Lockheed Martin
• Appointed Sherwood Love and Associates to undertake an
independent review of executive remuneration
Guidance
Improving profitability and cash flow in FY14 and beyond
• Strong organic pipeline of revenue opportunities
 Negotiating or finalising new agreements
 New World revenue will continue to offset decline in traditional revenue
 Strong pipeline underpinning the strategy of organic growth
• Trend of expanding margins
 We expect H1 EBITDA within the range of $9.5m - $10m
o Includes a write back provision of $1.2m
• Improved balance sheet
 Debt refinanced on improved terms with maturity extended to June 2018
 Debt reduction of $7m in FY14
 Data Centre to be retained as a performing, non-strategic asset
• ASG increasingly recognised as the leader in New World
The Marketplace
‘New World’ reality
• Decision makers / buyers have changed (CEO, CFO, Operational Heads)
• Looking for Total Cost of Ownership (TCO):
• Efficiency, simplicity, productivity
• Opex rather than capex; usage-based costs
• 30-40% savings, led by outcomes-based business decisions rather than technology
• Shrinkage of internal ICT departments
• The new reality
 Reduction in project/staff augmentation
 Tenders in Australia already more sophisticated
 ‘Old World’ IT declining as a proportion of overall revenues
 Change in the buying drivers
BUSINESS
‘NEW WORLD’
under business
management
Applications
Communications
Communications
Infrastructure
Data Centre
SaaS
Applications
(Commodity)
CIO
Staff Augmentation
Product License Vendors
‘OLD WORLD’
under CIO
management
Infrastructure
Data Centre
‘Old World’ under pressure
The global marketplace
Large multinationals are forced to change as traditional business declines
• IBM
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6-straight quarters of revenue decline
Hardware & traditional services down by up to 16.6%
Business consulting up 0.4%
“….(We) may not have the right playbook to thrive in a quickly shifting technology landscape for
business technology.” – IBM CEO, The Wall Street Journal, 2013
• ORACLE
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Annuity from existing revenue & licensing model is flat
Hardware sales down by up to 13%
Annualised SaaS revenue run rate US$1B (through acquisition of New World capability)
“Oracle’s top line has seen a bit of sluggishness in the past few quarters due in part to its slow
adaptation of Cloud Computing.” – NYSE statement, August 2103
‘Old World’ under pressure
• SAP
 Traditional licensing income down 5%
 Cloud revenues increased by 6%
 Undertaking an aggressive acquisition strategy to drive transformation
 “SAP is also in the midst of a massive make-or-break transformation… It has gone ‘all in’ in the
cloud because its leaders know core on-premises ERP revenues are in decline”. – Information
Week, November 2013
“CIOs are exhibiting all the classic signs of a monopoly suddenly exposed to competition.
Without a company mandate to use internal IT, customers are taking their business
elsewhere, with a bounce in their step and a gleeful smile.” – IT News, November 2013
The Australian Market
Comparative companies current position:
• Most Australian ICT companies are impacted by a decline in traditional services:
 Revenue declines of -6% to -17%
 EBITDA impacted -8% to -31%
 Organic growth fallen by -4% to -17%
• Some companies resorting to acquisitions to shore up traditional business
models
• Guidance assumes spending constraints are due to current economic conditions
FACT: When spending returns it won’t be on Old World services
“At the moment most large to medium-sized businesses have their own IT networks stuffed full of
servers and staffed by dolphins (we know they're intelligent but we can't communicate with them). In
10 years' time all that will be gone.” – Marcus Padley (stockbroker and market commentator), The
Age, September 2013
ASG’s opportunity
•
ASG seeing the same pressures in traditional services:
 Reseller revenues down 47% (H1 FY13 versus H1 FY14)
 Staff augmentation projects down 12% (H1 FY13 versus H1 FY14)
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But what we are also seeing:
 Services revenue growing (including managed services and New World) – up 20.5%
 New World business more than compensating for drop-off in projects (8.5% of H1
revenues)
 Over 30% of new pipeline opportunities relate to New World
 Improved margins over Old World staff augmentation projects
 All managed services contracts renewed in FY13 (76% of total revenue is recurring)
ASG is ahead of our local competitors, having invested in the
growth opportunity presented by New World transformation.
The ASG Advantage
• The gap between ASG and local competitors is increasing
 New World business increasing as a proportion of overall revenues
 ‘Cloud agnostic’ competitors relying on tactical acquisitions to shore up short-term revenues
 ASG experiencing sustainable organic growth based on two-pronged sales strategy
• ASG’s 1st mover advantage as an early adopter
• We have re-shaped our business to offer enterprise-level integrated capability
• Competitors are slow to adapt or are focusing on SME /niche level opportunities
• ASG is now the leader in helping Australian organisations transition to New World
• We are positioned to expand without additional fixed overhead cost investments
‘Our guidance of a H1 EBITDA of $9.5m - $10m
demonstrates the trend of improved margins and
cash flow from Q4 FY13, and the traction we are
achieving in the market, are a sound platform for
increased profitability in FY14 and beyond.’
Q&A