UXC gears up for expansion following FSG sale

Sale of Field Solutions Group business for $61 million paves way for selected acquisitions

Melbourne-based IT services company, UXC (ASX: UXC), has outlined its strategy to expand, following the decoupling of UXC’s IT business from the Field Solutions Group (FSG) and the sale of FSG to investment firm Cashel House for $61 million.

Managing director, Cris Nicolli, said in a statement to the ASX this week that the effort to remediate the poorly performing FSG group was more "more difficult" than he originally anticipated, but the imperative to execute the sale with speed had nearly been achieved.

In August, the company announced the sale was going ahead following financial approval.

"We have attracted a reasonable sales price [for FSG], and the proceeds will be used to strengthen our balance sheet through debt reduction, strengthen our earnings through selected acquisitions, and also strengthen our shareholder returns through a proposed return of capital, subject to shareholder approval," Nicolli said.

He also conceded that its financial results for the 2011 fiscal year were impacted by non-recurring costs and charges that were incurred to pursue its strategy of becoming a pure play IT company.

“These losses were greater than I had anticipated at the half year due to the impact of goodwill impairments that were required,” Nicolli said.

UXC received an impairment charge of $7.7 million from the sale of FSG to Cashel House.

UXC posted a net profit of $4.5 million from continuing operations in the year ending June 30 2011, down from $20.3 million in the previous year. Revenue rose 11 per cent to $522 million, while underlying earnings before interest, tax, depreciation and amortisation (EBITDA) increased by seven per cent to $33 million.

Nicolli attributes this to the launch on 1 July 2011 of UXC Consulting and UXC Connect to help restructure UXC's consulting and IT infrastructure businesses.

"These transformations were undertaken with the rigour applied to a customer engagement, and involved the amalgamation of 1,150 staff and multiple business systems," he said.

"Some $1.1 million of reorganisation and restructure costs were incurred in the [July] period to achieve this."

He added that the company has also retained a consulting business that was part of FSG called UXC engineering solutions.

"With a strong customer base in utilities, there is a business model and opportunity in this space that we wish to develop. Its operations are reported in the IT group for the first time, and it has incurred a loss of $0.8 million in the period,” Nicolli said.

“However, steps are in progress to return the business to profitability.”

Following these impacts, UXC's adjusted EBITDA was $32.9 million. In addition to occurring costs, the company had some recent customer contract wins, including paint and hardware company, Dulux.

"At the close of the financial year, the value of our signed contracts to be delivered in the next 12 months was up 10 per cent on the prior year, while the value of those contracts to be delivered over the life of the project was up by 22 per cent, to $330 million," he said.

"Since the close of the [financial] year, we have won commitments pending signature for an additional $150 million of spend over the coming year."

Follow Hamish Barwick on Twitter: @HamishBarwick

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