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Allied Reports Profit Boost & 229% Share Price Lift

  • 01 September, 2004 11:50

<p>DEFENCE CONTRACTOR, SECURE VOICE, DATA AND VIDEO COMMUNICATIONS NETWORK SPECIALIST ALLIED TECHNOLOGIES GROUP(ASX:ATZ) REPORTS HIGHER THAN FORECAST PROFIT, INCREASED TURNOVER - AND A 229% PLUS INCREASE IN SHARE PRICE:(detailed report to the ASX follows).
Media contacts: MD Ray Doak 02 6242 3000; Executive Chairman Michael Addison 02 8259 4100; PR Terry Quinn 0439 710 418</p>
<p>In Brief: Since 1 July 2003:</p>
<p>Market capitalisation up by over 69 times from $300,000 to $20.7 million
Share price up by over 229% from 12 cents to 39.5 cents.
Turnover up by 12.5 times from $4 million to $50 million
Significant corporate activity - over 85 ASX announcements.</p>
<p>"With a 30 April 2004 effective date for the Allied acquisition, the actual profit after tax figure of $1,041,438 (before the write-off of goodwill arising on acquisition) for the full financial year to 30 June 2004 reflects the inclusion of Allied’s results into the Company’s consolidated earnings for only the final 2 months of the 2004 financial year," Managing Director Ray Doak said today.</p>
<p>"Based on a weighted average of approximately 12.2 million shares in issue over the period, this gives an earnings per share figure (before the write-off of goodwill arising on acquisition) of approximately 8.5 cents for the full financial year.31 August 2004." Mr. Doak said</p>
<p>ALLIED TECHNOLOGIES
GROUP LIMITED
30 JUNE 2004
PRELIMINARY FINAL REPORT</p>
<p>APPENDIX 4E
ASX Code: ATZ</p>
<p>DIRECTOR’S REVIEW OF OPERATIONS</p>
<p>Recapitalisation and refocus of the Company</p>
<p>The Company has seen significant change, growth and strengthening since the commencement of the 2004 financial year.</p>
<p>From an effective share price of 12.0 cents and a market capitalisation of less than $300,000 at the start of the financial year, the considerable scale of the improvement is evidenced by a closing share price of 39.5 cents on the day prior to the date of this report and a prospective market capitalisation of approximately $20.7 million based on this share price at the date of completion of the TUSC transaction.</p>
<p>As an integral first step in the rebuilding process, the Company was recapitalised by its directors on 28 July 2003 with a cash injection of $500,000. This was accompanied by a commitment to refocus the Company’s activities and to rebuild through organic growth and acquisition.</p>
<p>This rebuilding process has seen revenues improve from less than $4 million for the 2003 financial year to pro forma revenues of approximately $31 million for the 2004 financial year (see table), and a projected $50 million in revenues looking forward to the end of June 2005.</p>
<p>At a corporate level this has involved a significant amount of restructuring and rebuilding activity, evidenced by no less than 85 Company ASX announcements since the start of the 2004 financial year.</p>
<p>Acquisition of Allied Technologies Group</p>
<p>The most significant step in the rebuilding process was undoubtedly the acquisition of the Allied Technologies Group on 30 April 2004.</p>
<p>The acquisition consideration, which was entirely scrip based, involved the issue of 17,756,263 new shares to the Allied sellers at a price of 40 cents per share, giving them an effective 58% shareholding in the Company at the date of the acquisition.</p>
<p>The acquisition involved an appropriate change in the name of the Company from Servicepoint Limited to Allied Technologies Group Limited and the appointment of Mr Raymond Doak, the Founder and Managing Director of Allied as the new Managing Director and CEO of the Company, an appointment that the Board welcomed.</p>
<p>As a direct result of the significant increase in the scale of the Company’s business due to the Allied acquisition, the Company was required by the ASX to satisfy the requirements of Chapters 1 and 2 of the ASX Listing Rules, as if applying for re-admission to the Official List. This necessitated the issue of a prospectus on 9 March 2004 and the issue of a further 5 million new shares in order to meet the ASX shareholder spread requirements. The prospectus share issue was done at a price of 30 cents per share, reflecting current market conditions at the date of issue.</p>
<p>In considering this result, it is important to note that a significant proportion of Allied’s revenues are generated in the final quarter of each financial year. With the Allied acquisition having been effective from 30 April 2004, this would have resulted in the Company reporting a disproportionately better than average earnings per share figure for the full financial period.</p>
<p>Had Allied’s results for the full financial year been incorporated into the Company’s consolidated earnings, the pro forma combined results for the Group for the full financial period would have been as set out in the table below.</p>
<p>Pro Forma Consolidated Results for 12 months ended 30 June 2004</p>
<p>Prospectus
Projection
$
Pro forma Actual
$
Variance
%</p>
<p>Revenue
32,019,783
31,159,931
-2.7%</p>
<p>EBIT
2,051,216
2,312,970
+12.8%</p>
<p>Profit before Tax
1,762,390
2,096,351
+18.9%</p>
<p>Taxation
229,479
396,404
+72.7%</p>
<p>Profit after Tax
1,532,911
1,699,947
+10.9%</p>
<p>Notes : Based on the inclusion of Allied’s financial results for the full financial year ended 30 June 2004, and excluding the write-off of goodwill on acquisition.</p>
<p>As the table demonstrates, the actual pro forma consolidated figures for the year compare favourably with the pro forma forecast combined results published in the Company’s recent prospectus, reflecting improvements on projected figures of 13.4% in EBIT, 18.9% in profit before tax and 10.9% in profit after tax.</p>
<p>Allied announcement of a 1.5 cents per share fully franked dividend with a dividend reinvestment option</p>
<p>Based on the Group achieving better than expected results for the 2004 financial year, and with in excess of $3m of dividend franking credits in hand, the directors reversed a prior decision not to pay a dividend in respect of the 2004 financial year and, on 30 July 2004, announced a 1.5 cents per share fully franked maiden dividend.</p>
<p>The payment of the dividend was accompanied by an optional dividend reinvestment plan, giving shareholders the opportunity to increase their shareholdings in the Company.</p>
<p>As a show of confidence in the Group, each of the Executive Directors, who at the time of the announcement held in excess of 55% of issued capital of the Company, undertook to take up their full share entitlement under the plan.</p>
<p>MATTERS ARISING SUBSEQUENT TO YEAR END</p>
<p>Outlook for the coming year to 30 June 2005 - Allied goes into new financial year with 50% of FY2005 budgeted business already in hand</p>
<p>On 19 July 2004 it was announced that Allied had started the new financial year with in excess of $18 million of business in hand, putting the Group in a strong position for the coming financial year.</p>
<p>This figure represents some 50% of the projected FY2005 budgeted revenues and is made up of $5 million in unrecognised revenue from existing projects yet to be delivered, new orders already received in FY2005 of $5.5 million and annuity revenues for the Group of approximately $8 million.</p>
<p>At the same time in July 2003, Allied had approximately $12 million of business in hand.</p>
<p>On 2 August 2004, the Company announced projected revenues of $35 million and projected profit after tax of $1.9 million (excluding amortisation of goodwill arising on the Allied acquisition) for the financial year ending 30 June 2005. These figures, which reflect the director’s confidence in the future of the Company, represent improvements of 12.3% in revenues and 11.8% in profit after taxation over the pro forma combined results for the Group for the 2004 financial year.</p>
<p>Acquisition of TUSC Computer Systems</p>
<p>On 17 August 2004 the Company announced that it had entered into a conditional agreement to acquire the entire issued share capital of TUSC Computer Systems Pty Limited and its wholly owned subsidiary Enterprise Management Solutions Pty Limited.</p>
<p>Consideration for the TUSC acquisition is based on a combined multiple of TUSC’s FY2004 and FY2005 EBIT, and is payable in a combination of cash and shares. The first portion of the consideration, which is payable on completion of the transaction, will comprise 6 million new Allied shares, to be issued to the TUSC sellers at a price of 30 cents per share, and $2.0 million in cash.</p>
<p>The balance of the consideration which, based on current 2005 EBIT expectations will amount to approximately $2.9 million (prior to final adjustment at the date of completion), will be payable in cash within 30 days of completion of TUSC’s FY2005 audit.</p>
<p>The Allied directors believe that the reasons for the proposed acquisition of TUSC are soundly based and will have a significant and positive impact on the Company.</p>
<p>Besides having a positive impact on Allied’s FY2005 earnings per share, TUSC will give Allied a strong geographic presence in the Victorian and South Australian markets and will present the Company with numerous cross-selling opportunities.</p>
<p>Furthermore, with the majority of TUSC’s customers comprising enterprises and utility and telecommunication providers across Victoria, Allied’s present reliance on Government and defence related customers will be reduced.</p>
<p>With an effective transaction date of 1 July 2004, Allied will realise the benefit of the TUSC revenue and earnings for the full financial year ending 30 June 2005. The table below reflects the combined pro forma projected figures for Allied for the 2005 financial year.</p>
<p>Pro forma projections for 12 months ending 30 June 2005</p>
<p>Allied
($000’s)
TUSC
($000’s)
Combined*
($000’s)</p>
<p>Revenue
35,000
15,000</p>
<p>50,000</p>
<p>EBIT
2,500
1,800
4,300</p>
<p>Profit after Tax
1,920
1,300
3,220</p>
<p>Weighted Av. shares in issue (000)**
-
-
47,729</p>
<p>Projected EPS (cents)</p>
<p>6.75</p>
<p>* Based on the inclusion of TUSC’s projected figures for the full financial year to 30 June 2005, and excluding the write-off of goodwill on acquisition.</p>
<p>** Excluding any shares to be issued under the dividend reinvestment plan.</p>
<p>In conjunction with, and upon completion of the TUSC transaction, Mr John Gwyther, the current Chairman and Founder of TUSC, will join the Board of Allied as a non-executive director. The Board welcomes this appointment and believes that Mr Gwyther will make a significant contribution to the future of the Group.</p>
<p>$5 million Capital Raising to fund TUSC acquisition and future growth</p>
<p>In conjunction with the proposed acquisition of TUSC, the Board announced on 17 August 2004 that it had received binding undertakings from 10 small cap funds and other professional investors for the placing of a total of 15,625,000 new Allied shares at a price of 32 cents per share, to raise a total of $5.0 million, before expenses.</p>
<p>The directors are of the view that the introduction of the 10 small cap funds onto Allied’s share register will enhance the Company’s credibility and standing in the wider investment market.</p>
<p>In conjunction with the proposed issue, Allied’s Chairman, Mr Michael Addison, expressed his ongoing commitment to the Company by agreeing to take up 1,000,000 shares under the placement.</p>
<p>Of the gross amount to be raised under the share placement, $2.0 million will be used to fund the cash element of first portion of the TUSC purchase consideration, and the balance will be applied towards procuring the release of personal guarantees in respect of the debts of the TUSC Group, the expenses of the transaction, the costs associated with the raising of capital under the share placement and towards Allied’s ongoing working capital and growth requirements.</p>
<p>Allied represents a solid business with good growth prospects going forward</p>
<p>Allied has a track record of organic growth, having achieved 17% compound revenue growth over the 5 year period prior to its acquisition by Servicepoint. Further organic revenue growth of approximately 12% is anticipated for the 2005 financial year.</p>
<p>The directors are of the view that the acquisition of TUSC, with its higher EBIT/revenue margin ratio, in conjunction with benefits currently being realised through economies of scale, will improve the Group’s overall profit performance going forward.</p>
<p>Notwithstanding the Group’s strong internal growth prospects, the directors also remain committed to their current acquisition programme - with a view to reaching an annualised revenue target of $100 million by the end of December 2005.</p>
<p>Allied’s successes, as with all successful companies, are a direct result of the commitment, capabilities and contributions of all its employees. The Board would like to thank all employees for their valued contributions in bringing the Company to the point where it is today.</p>
<p>Ray Doak</p>
<p>Managing Director</p>
<p>31 August 2004</p>

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