Empired reports “solid first half result” despite losses from NZ earthquake impact

Empired reports “solid first half result” despite losses from NZ earthquake impact

Reports revenue of $84M, and an EBITDA of $6.4M

IT services company, Empired (ASX:EPD), has revealed its 1H FY17 financial results for the half year ending 31 December 2016, reporting a revenue of $84 million and an EBITDA of $6.4 million.

It mentioned that operations are continuing to strengthen, with Q2 EBITDA stronger than Q1 as a result of the New Zealand earthquake impact and annual holiday period in Q2.

In November last year, ARN reported that the magnitude-7.8 New Zealand earthquake took $400,000 off Empired’s pre-tax earnings for the 2017 first half financial year.

But the company specified then that despite the earnings hit by the earthquake, it is on track to see earnings (EBITDA) of between $6 million and $6.8 million for the full half year, which it has delivered in.

The company’s managing director, Russell Baskerville, attributed the “solid first half result” to the growth in services.

Empired’s financials were said to be in line with guidance, with revenues up eight per cent its EBITDA up from $0.9 million from the same time last year.

In a statement on the ASX, the company also reported a positive operating cash flow of $1 million, up $5.3 million and a net debt of $30 million, down $3 million from December 2015.

“We… remain acutely focused on our financial performance. Our confidence in a strong second half performance and continued growth in FY18 is underpinned by a solid pipeline of sales activity increased levels of recurring revenue and services aligned to growth areas of the market,” Baskerville said.

These “high growth segments” of the market include managed services, cloud, mobility, data and analytics.

The company also said sector growth remains underpinned by the proliferation of data, mobile services, and accessibility of high-speed communications that are driving the digital economy.

Its clients embracing analytics, online, mobile services and technology driven business models have driven productivity and “competitive advantage”, it said.

“M&A in the Australian sector by international strategic buyers has been buoyant with a number of Empired’s key competitors being acquired creating a significant market opportunity for Empired,” it indicated.

Empired management estimates its contestable market to be about $30 billion.

“Our resolve is to continue to deliver high quality services that transform our clients’ businesses in an ever present digital era is steadfast and remains our highest priority,” Baskerville added.

In addition, Empired estimated that about 60 per cent of its revenue was associated with long-term multi-year contracts.

This includes The Royal Automobile Association of South Australia’s (RAA) selection of Empired, in September 2016, as its primary partner to build a new digital platform and deliver on its digital transformation strategy.

It also specified that it has streamlined operating model maturing, with most of its management and sales vacancies filled. Most recently, the company lost its transformation services executive general manager, Mike Morgan, to Insight.

According to Baskerville, the ramp up of its global delivery centre will progress H2 results, driving margin improvement and competitiveness.

“We have a number of programs underway to continue to drive margin improvement including the ramp up of our delivery centre in Bengaluru, improved operational systems to drive improvements in utilisation, and a more efficient, lower cost operating model,” he said.

He added that investments in cloud based software IP and consumption based managed services will continue to differentiate the company with “strong growth in cohesion users and revenue”.

“These initiatives provide confidence in continued growth in profitability as we strive toward another record H2 result, delivering a high level of EBITDA to cash conversion and a material reduction in our net debt levels.”

At the time of writing, Empired’s shares were trading at $0.45.

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