INTERVIEW WITH RON BAXTER, CHAIRMAN AND DEAN LANGENBACH, CHIEF FINANCIAL OFFICER OF ASG GROUP LIMITED (ASZ)

“ASZ - Full Year Results Summary”

http://www.brr.com.au/event/49591

WEDNESDAY, AUGUST 27, 2008, 11:45 AM.

            BRR    Today on Boardroomradio we’re joined by Mr. Ron Baxter, the Chairman and Dean Langenbach, the CFO of ASG Group. Gentlemen, welcome to

10                    Boardroom Radio.

            ASZ     Thanks, Joel.

            ASZ     Thanks, Joel.

            BRR    First, a question for you Dean. It’s been another great result for ASG. Net

15                    profit after tax was up nearly 30%. Could you perhaps touch on some of the key figures to emerge from this year’s result?

            ASZ     Thanks, Joel. It was a great result for us this year. The key highlights, we broke through the $100 million amount of revenue line, a 46% growth. EBITDA also grew 46%. Key factors in that revenue, we had some strong

20                    contract wins throughout the year which had all been announced and the existing customer base grew substantially as well. So it was a very strong year organically. It was a purely organic year with no acquisitions in that result. So, as I said, we’re very happy with the growth in both revenue and the profit we achieved. Another point worth noting is the LIBOR cost as a percent

25                    of revenue came down, 2% throughout the year. This was really driven by the efficiencies and the international model we’ve developed the last 12 months and those that understand our business model will know that our contracts have rise and forecloses in the month protected by the increase in LIBOR rates that we’ve seen in the market in the last couple of years so, all in all, a

30                    very good result.

            BRR    You touched on growth in client base. There was some major contract wins in the past year plenty of blue chips in government contracts making up a significant proportion of your earnings. Who are some of the new clients

35                    coming on board?

            ASZ     In the first half we had some clients at New South Wales, Virgin Blue, Multiplex, and in Western Australia Impex, and also in WA, Department of Corrective Services. In the second half we had a lot of contract win in the federation, Department of Infrastructure, our largest managed service

40                    contract in that region and a lot of growth from our existing customer base in both the Western Region and New South Wales.

            BRR    Now, Ron, over to you for a moment. With the exception of some of the bigger miners and mining contracts, this has been a pretty touch reporting

45                    season for most companies, but ASG has come in with a great result. How exposed do you think ASG is to the current downturn?

            ASZ     Well, I think it was a strong result and we were extremely happy with it. But one of the things the company executives and the board are looking at is the outlook as things stand at the moment. One of the attributes that we have of our assets is our business model and the long term contracts which typically extend over four years as initial periods and then renewal periods thereafter sets it up very nicely for continuing revenue and continuing relationships with the clients. Now, not only does this help us generate revenue over the period

5                      of the contract and additional project revenue, but it does give us the chance of bridging across any short term economic fluctuations because the client is in a position where he needs to make any buying decisions during that period of time. The second is, that we do have a diversified client base. There’s a lot of governments and large corporate in there. For example, about 65% of their

10                    total client base at the moment is government. Of that, a chunk that relates to federal government has grown pretty rapidly so we don’t see any reason that government expenditure in this area would decline. So, when you talk about downturns, obviously, everyone in the economy has to participate to some extent in the downturn, but we see our business model can go with their client

15                    base is sustaining us pretty well.

            BRR    Capital and debt marks were in a pretty awful state at the moment. I think everyone will agree on that. To what extent is ASG able to maintain its current growth and its growth plans without resorting to the capital or debt

20                    markets?

            ASZ     Well, we’ve got good relationships with a lot of our investors who have been on board probably from most of the time that we’ve been listed the last five years and we believe that we’ve carried on through a period of high growth and we’ve met all their expectations and ….but they have been focusing on

25                    our business model which we’ve always said that it should work and also to the economic conditions. But, we’re not trusting out of the capital markets or the debt markets at the moment. We’ve done some work over the last few with their bankers and we have in place quite useful facilities which we haven’t had to call on yet. So, what we’re working on I guess is the ability to

30                    sustain the company though some of their lengthy selling process. It’s the new opportunities that we have. If it does get down to the fact that we need more capital for working capital if we’re strongly successful and we get some large contracts coming in, we believe it’ll be a good story, that we can take that story to the banks or to the investment community as good news. In other

35                    words, it’ll be a prosperity driven requirement, not a situation where we’re seeking funds in order to carry on in that current business side. So, I would say that I’m also not particularly optimistic if they are over the capital or the debt markets, but I’m in a position where the company should go forward under its own steam unless we’re strongly successful in which case that we’ll

40                    have a good case to get more money out of other resources.

            BRR    Ron, looking at ASGs client base, how do you expect that they’ll combat the other current economic environment and do you think some sectors will be faring better than others?

45        ASZ     It’s really a function, I think, of not so much as I will combat it because we have a fair idea of their client base and this sort of impact economics might have on them, but we’re more interested in what they use their IT services for. The usual approach of the larger organizations that we contract to is that they have a strategic view of IT. When they spend money, they spend money because they’re going to get a return. If it’s in the case of the government, they’re looking at policy initiatives that they’re trying to serve, services that they want to improve to their various constituencies. In the case of corporations, it has to do with more efficiency, better profit things which have

5                      a positive impact on their organization. So they’re not going to shy away from spending $20 million, or $30 million, or $50 million if they can see a short term payback in the efficiency and effectiveness of their business and their profitability. So, regardless of the economy, a lot of these people are going to press on and they’re going to continue spending. For example, we have seen

10                    over the last 12 months….in other words, from last August to this August which hast been a good time, an increase in our prospect backlog which is the way we measure our forward opportunities and we can see very large projects which will come out for bid in the next 12-18 months. Interestingly, because we work with these clients and have a relationship with them, we

15                    know these sorts of things that are coming forward. And interestingly, they haven’t come back to us and said, “Oh, that $30 million we were going to spend, we’ve decided against it.” That hasn’t happened and the list has begun to grown. So, we’re now in a position, I think that we can look forward to some stability in our opportunities. And probably your question -- your

20                    previous question regarding funding the growth will be more an appropriate one to answer than the question of, “Will the demand be there and will our growth be available?”

            BRR    And, Ron, finally, you’ve made some general comments about the economic

25                    outlook. FY’09, how do you think ASG is going to fare?  And perhaps you could provide some guidance.

            ASZ     Yeah. Well, in terms of guidance, we can talk about guidance in a generalized way. In summary, I guess the….we see the general economy as being uncertain. Not a very good environment going forward. Similarly, debt and

30                    capital markets, questions and answered have shown. Again, we see is not too good. We see IT as variable Apache because if you look at the sort of industry predictions that industry watchers are saying that the industry which has grown probably a little less than 10% cumulative annual growth right out of the last five years or so, there’s two predicting it’s going to grow 7% to 8%

35                    over the period up to 2012. Now, if you compare that with the sort of growth rates that we’ve experienced, we’ve grown our revenue of 37% compound of the last five years. That is being driven by firstly, the industry growth, but secondly, by the selective outsourcing phenomenon they feel outreaches across large outsourcing contracts to be broken up into bite sized chunks

40                    which is being addressed by companies like ASG. Now, we therefore have been able to probably grow three or four times the rate of the underlying services growth and we believe….and evidence shows this is going to continue. So, given that people are still predicting relatively strong growth and we have a customer base of the type which I alluded to before, it express….I

45                    expect that growth to continue. There are may be some issues elsewhere in the services and software markets where capital decision is may be delayed, but overall, we see that we’re application oriented, large client focused, we have multi-year relationships. We see our model is very defensive in the economic downturns. I guess, also, we’re operating primarily as a prime contractor which means we have a consortium behind us, therefore, we control the client relationship which is very important an as pressures of one sort or another come on we’ll be in a position to do it regularly with a client and do that. So, for us, we’d say the outlook is strong and we’re optimistic.

5                      We’d also say that ASG is the only Australian based company that is really focused on this current position. There are a lot of more generalized companies out there in the marketplace and therefore I supposed from that point of view we see our position is both unique and quite prospective in the current market.

10

            BRR    Dean and Ron, thanks for those comments and thanks for your time today. Congratulations on the result. We look forward to chatting again soon.

INTERVIEW CONCLUDED

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