The global sharemarket rout triggered by the downgrade of the US Government’s credit rating has had a dramatic effect on Australian technology stocks, with all of the nation’s major listed technology companies suffering share price drops over the past several days ranging from three percent to over 22 percent.

Australia has several dozen listed technology stocks. Of these, the largest and most closely watched is Telstra, which has a wide diversity of investors ranging from large institutional players such as banks all the way down to so-called ‘Mum and Dad’ investors who picked up the company’s shares during its lengthy privatisation.

Out of all of Australia’s technology stocks, however, Telstra has been one of the least hit by the financial saga which has unfurled globally since the weekend, with the company’s share price sinking only 5.09 percent since Monday.

The telco’s little brother TPG wasn’t so lucky, however, taking a 14.06 percent body blow to its share price in the past two days. The company is now trading at $1.28, which is a hair above the lowest level it has seen in a year, $1.23. Fellow telco iiNet was also substantially affected by the sell-off, with the company’s share price plunging 7.98 percent to $2.13.

That price leaves iiNet down a solid dollar from its high point over the past year of $3.13 — and also just slightly above its year’s worst price.

A large part of Australia’s listed technology sector is made up of IT services companies, including names such as UXC, DWS, SMS Management & Technology, Oakton and the diversified Data#3 group. Most of this cluster of companies has also been affected by the sharemarket rout, with ASG being hit the worst percentage-wise, sinking 22.67 percent in the past several days.

Oakton shed 5.17 percent of its value, SMS 9.68 percent, CSG almost 15 percent, DWS 8.40 percent and UXC a solid 10.71 percent.

The news came as local IT services firms started to deliver mixed results in announcing their latest financial standing this week. Oakton’s overall revenue (not including the results of its court settlement with partner Tenix) was flat, but profits were 35 percent down on the previous year, and the company’s chief executive warned the company’s Victorian operation had “significantly underperformed”.

Overall, the company anticipated an increased demand for its services across most sector, Wilson said, but the executive also warned that overall domestic demand might be adversely impacted by what he described as “international economic issues”.

In contrast, Data#3 noted last week that the company expected its profits to be ahead of previous guidance, with the company planning to book a profit before tax up about 38 percent. Revenue was on track to reach $697 million — about 16 percent up on the previous year. “While the market remains quite fragile, we’ve once again been able to achieve a great result for shareholders,” said Data#3 managing director John Grant.

Broader commentary on the market this afternoon seems to be focusing around the idea that the steep sharemarket fall — which wiped billions off the value of Australian companies — had largely bottomed out, with investors looking to capitalise on the low prices and add cheap pickings to their portfolio.

Image credit: thenails, Creative Commons

SMS Management and Technology Limited (SMS) today announced it was planning to import more brains from the UK and Ireland as well as hiring locally, as its revenues and earnings headed substantially upward over the past six months.

The mid-tier IT services company today released its half-year results, highlighting revenue of $146 million for the six months to the end of 2010 — a figure up 24.7 percent on the same period 12 months earlier. Earnings before interest, taxation, depreciation and amortisation (EBITDA) also grew by 18 per cent, and net profit after tax (NPAT) reached $15.2 million, improving by 14.7 per cent.

The company’s chief executive Tom Stianos (pictured) said he was pleased with the results, as the company managed to return the business to a growth tempo in 2010. Also, he said SMS had signed contracts for new work worth over $170 million during the six month reporting period.

The executive said competition for IT skills had grown fast in the last six months, and that in result the company turned to recruit more staff from the United Kingdom and Ireland. Stianos explained SMS had developed a complimentary recruitment channel online, through social media, like Facebook and Twitter, which targets professionals abroad.

“We realised there was a lot of senior, experienced talented professionals who ordinarily might not want to move, but given the economic conditions in Europe, in the UK and Ireland now, they could be tempted,” Stianos said, noting SMS was now running its third intake of the last 12 months and had received a good number of foreign candidates, as new employees recommended friends to apply as well.

Stianos said this practice had proven to be successful in increasing recuitment, retention and development of new staff. “We sponsor them for three years, and at the end of the three years, the vast majority of them end up applying for permanent residency,” he said. “They proved to be very sticky and very loyal.”

Asked about the revenue growth, Stianos said one of the key drivers of the positive result was recruitment itself, along with pushing sales and investing “a lot” in new service offerings, through business acquisitions such as Bright Blue which – acquired in February 2010 – expanded SMS’ capability to offer customer relationship management solutions.

More recent acquisitions include leading implementation provider of IBM’s Filenet solutions, Renewtek – which also brought an offshore facility in Vietnam – and specialist Microsoft implementation partner Microgenx – which specialised in solutions built on .NET and SharePoint.

However, although SMS had gained the new facility in Vietnam, Stianos said the company would continue to hire more employees locally. “The offshore recruitment would be relatively small for us in this half,” he said. “Most of the next couple of years will still be local recruitment or people from overseas will join us locally.”

Stianos said SMS did intend to expand its offshore capabilities to support its offering of Microsoft applications and Filenet products, but he reiterated the effort would be aimed at expanding the company’s information and data management services; an area which – Stianos said – had proven to be successful.

The executive said more acquisitions could also follow this year, if SMS managed to find the right company at the right price. “All acquisitions are aimed at expanding our service categories and giving us cabilities we don’t already possess,” he said, adding new acquisitions couldn’t happen at the expense of SMS’s shareholders. “We maintain a pretty good price discipline, we’re on the market and if we find one we’ll do it,” he said.

Stianos refused to give guidance on the financial outcomes of the next half of the year, but maintained he was optimistic and that work needed to be done to improve the margins of the business.

Image credit: SMS Management & Technology

SMS Management & Technology has delivered on its promises to continue growing through acquisition, picking up local enterprise content and business process management group Renewtek in a purchase that will bring it 140 staff, $17.3 million in annual revenues and an offshore facility in Saigon, Vietnam.

In a statement today, the IT services company’s chief executive Tom Stianos said Renewtek would fit “nicely” within SMS’ existing business, and would allow the company to start offering ECM and BPM options to its existing clients.

“We have been impressed by the maturity of the Renewtek business, including the creation of specific development tools and methods, all designed to accelerate and streamline the projects that they deliver,” the SMS chief said.

“We are confident that this new capability will prosper within SMS, giving it ready access to our five regional hubs and the national sales team. Renewtek has a strong sales pipeline in markets where SMS is already delivering other services, and their development tools will further strengthen our foothold in the financial services sector.”

Renewtek group managing director Fergus Porter said Renewtek could now take on larger scale projects as a result of being part of SMS, with the stronger financial position the larger company would bring it.

“We established Renewtek in 2004 with a view of becoming Australia’s leading technical consultancy and project delivery specialists within the ECM and BPM domains,” he said in the statement distributed by SMS. “We have made significant progress in achieving this goal, and we strongly believe that our next chapter – as part of SMS – will bring our aspirations to life.”

Senior Renewtek executives – Porter, as well as chief executive officer Craig Mullan and director of business development Patrick Lehane – will remain with the business and join SMS.

SMS has not previously had much of a focus on conducting work offshore. But the company said in its statement that over the past three years Renewtek had honed the processes needed to manage the hand-off between on-shore and off-shore work – including development and support work.

“SMS will use this as a foundation for the further expansion of its strategic initiative to provide clients with a broader range of delivery solutions … [it] will enable SMS to contest business it has otherwise not been in a position to respond to,” the company said.

The news comes as SMS has acquired a number of other local companies over the past few years. Earlier this year the company picked up Oracle consultancy Bright Blue Solutions, for example, and last year it bought two other companies, Aipex (which provides services around the Tibco technology line) and Pelion, which focuses on data management.

Image credit: Elaine Tan, royalty free

Australian IT services company SMS Managament & Technology today said it was in due diligence with two potential acquisition targets as it looked to continue to bolt on other companies to its already growing base.

“In each case, they’re specialists in an area which expands our capabilities and market footprint,” said the company’s chief executive Tom Stianos in an interview this morning after the group’s annual financial results disclosure.

If the acquisitions do proceed, they will do even more to cement SMS’s growing reputation as a serial acquirer in the enterprise IT services space in Australia. Earlier this year the company picked up Oracle consultancy Bright Blue Solutions, for example, and last year it bought two other companies, Aipex (which provides services around the Tibco technology line) and Pelion, which focuses on data management.

Stianos said SMS still had a good cash reserve for future acquisitions.

Rival IT services group UXC had put itself on the market, but Stianos would not be drawn on whether SMS had taken a look at the company specifically. “We’ve looked at all the big players,” he said. “But we’ve found that it’s more value-accretive for us to acquire a small capability — a specialist in an area — and use that to acquire organic growth.”

There was no win for shareholders in “doubling numbers without doubling profit”, Stianos said.

Australia’s IT services market is currently characterised by a plethora of mid-sized players like SMS, Oakton, CSG, DWS, UXC, ASG and more that are increasingly putting the pressure on bigger multinationals like IBM, HP, CSC and Fujitsu.

Stianos said there were some arguments that consolidation should proceed in the sector, but he would never let “ego” drive strategic decisions for SMS. “We’ll do what’s right for the company and for shareholders,” he said.

The results
The second half of the 2010 financial year was a better period for SMS than the first half. The company today revealed that for the year ended 30 June, it had increased revenue by 7 percent, reaching $247.6 million, with EBITDA up 15 percent to $38.1 million and net profit after tax up 15 percent to $27.9 million.

But Stianos said most of the revenue growth came from the second half of the year — with revenue for that half up 19 percent on the previous corresponding period, compared with only a 7 percent rise for the first half.

SMS’s staff numbers have jumped upwards since June 2009 as well, with the company taking on an additional 204 staff in the period — mostly in the second half — including 162 permanent consultants and 32 contractors.

SMS went through a staff chop in late 2008 as the global financial crisis hit the company hard. However, Stianos said he thought the up and down rollercoaster of staff numbers had not affected the company’s culture.

“I think our culture’s quite vigorous and strong,” he said. “If you’re adding 20 percent, that means that 80 percent of the people are already there and well-inducted.” He added he thought that it was the behaviour and values of the leadership team that made a company what it was.

In terms of future growth, the executive said he was seeing demand from most sectors, and that some would open up further shortly — for example, with the resolution of the government business “hiatus” created by the Federal Election.

And the SMS chief said while there was still a debate about the potential benefits to be gained from the National Broadband Network project — which the Coalition will cancel if it wins office — he was a believer. “People underestimate the innovation from the digital economy — really, it’s going to spur off a whole new wave of applications,” he said, noting he was confident other CEOs of technology companies had a similar view.

“SMS is not going to be involved in rolling out the cables,” he said. “We’re not about the tracks — but we are about the locomotives.”

Image credit: SMS Management & Technology

Australian IT services outfit SMS Management & Technology today said it expected to have a busy year investigating potential acquisitions, with one case currently in due dilligence and active discussions under way.

The company has acquired a number of smaller firms over the past several years, including TIbco specialist Aipex and data management consultancy Pelion in 2009.

“There’s enough that we would consider to be good companies,” said SMS chief executive Tom Stianos (pictured) today in an interview after the company released its financial results for the six months to 31 December last year. Revenue in the period was $117.1 million, a figure down 3.1 percent on the same period in 2008, while profit after tax was up 9.3 percent to $13.3 million.

Stianos said that after the global financial crisis, things were starting to heat up in the local IT services market.

SMS, for example, has been involved in a raft of projects with customers like the National Australia Bank, CGU, ANZ Bank and Cathay Pacific. The mining sector was showing signs of increasing investment, Stianos said, and the company’s Pelion acquisition was paying off, with staff focused on business intelligence and data integration being run off their feet with work.

And the energy sector was also proving fertile ground for SMS as utilities advanced smart metering plans.

Stianos said while SMS wasn’t involved in any larger merger plans, it was interested in smaller ‘bolt-on’ acquisitions in various verticals because it delivered SMS deep specialisation in certain domains.

It’s a strategy that other similar companies have also pursued. For example fellow IT services group UXC operates various subsidiaries in discrete areas like Oracle and SAP systems integration and unified communications.

SMS has also started “aggressively growing headcount,” according to the executive, after the company shed a number of staff and contractors in the second half of 2008, with the global financial crisis worrying local firms.

Stianos said during the period the company had retrenched about 10 people from its Canberra office as the impact of the Gershon review into government ICT spending had taken effect, and maybe “half a dozen” in NSW. “In the scheme of things it was tiny. I think it was the right thing to do at the time,” he said.

117 contractors were also cut in the period, but Stianos said that was the nature of contracting. At the end of December 2009, SMS had 1,193 staff, up from 1,168 six months earlier. 718 of those were permanent consultants, with an additional 51 to start since the results were locked in at 31 December.

Like other IT services companies, SMS’s share price has recovered considerably over the past year as confidence came back into the market. Stianos said anecdotally he knew some SMS staff had taken advantage of the lower prices and reaped windfalls. The son of a neighbour at Stiano’s country property had bought quite a bit of stock in the company, he said, at low prices.

“Apparently he did pretty well.”

Image credit: SMS Management & Technology