SMS chief falls on sword, consulting arm shrinks

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SMS chief falls on sword, consulting arm shrinks
Jacqueline Korhonen

SMS Management & Technology chief executive Jacqueline Korhonen has resigned after just over a year in the job, as the company forecasted yet another poor half.

Chairperson Derek Young said on Monday night that a three-year growth plan had been in place but results were not up to scratch.

“Recent performance has been disappointing and well below expectations. I believe that Jacqueline’s decision is in the best interests of the company and provides for new leadership to refocus the business on both its core and emerging service offerings," he said, while thanking Korhonen for her time with the solutions provider.

SMSMT's share price had fallen from a peak of $5.43 in October to $1.84 on Monday afternoon.

Korhonen joined SMSMT as chief executive in February last year after heading up Infosys Australia for seven years and serving 23 years with IBM. Young said at the time of her appointment that Korhonen had a "a track record of managing and delivering profitable growth within technology companies".

Also on Monday night, the company named chief financial officer Rick Rostolis as the replacement chief executive. Rostolis came to SMSMT in October 2010 with 12 years of professional services experience with KPMG.

"The combination of Rick’s strong commercial background and deep understanding of the business positions him well to mobilise the management team and deliver improved performance," Young said. "The successful execution of our strategic plan will form the basis for sustained value creation for our shareholders."

The new chief, who starts immediately, will be on a base salary of $600,000 per year with a potential $200,000 short-term cash bonus and a long-term incentive of $200,000 tied to company stock.

Current group financial controller Peter Sherar will fill the CFO vacancy created by Rostolis' promotion.

Consulting arm bleeds, 100 employees depart

SMSMT also downgraded its second-half forecast on Monday night. The company had already copped a hammering in February after reporting shrinking revenue and profit for the first half-year - a result that it blamed on its Advisory and Solutions consulting arm.

At the time, Korhonen was upbeat about the second half - but the company revealed Monday that the Advisory and Solutions business is continuing to struggle.

"Unfortunately, H2 contract wins and revenue for the Advisory and Solutions business have been poor with SMS consulting H2 revenue (January-April) significantly down on the prior corresponding period," said the announcement to the ASX.

SMSMT's consultant team has shrunk by 100, going from 920 staff in the first half to 820 now. Billable utilisation for the remaining consulting staff is at just 80 percent for the second half, equating to a $4 million to $5 million hit on full-year earnings before interest, tax, depreciation and amortisation.

"While there are some signs of improvement in billable utilisation in Q4, this will not be sufficient to meet market consensus expectations. The company expects full year EBITDA for the year ending 30 June 2016 to be in the range of $15.5 million to $16.5 million prior to any one-off items," stated the company.

New chief Rostolis said that the company would have to prioritise quick wins. He said its managed services and consulting arms dealt with different sales cycles, and the company needed to "calibrate" accordingly.

“Large multi-year managed services opportunities involve detailed and significant client investment decisions, while Advisory and Solutions opportunities are often aligned to investment horizons which are reflected in more frequent and shorter sales cycles.

"We will be rebalancing our various sales teams to focus specifically on discrete areas of our market, particularly in our Advisory and Solutions business, as a priority,” he said.

A share buyback campaign would continue, according to the company.

Updated 10:25am 5.5.2016: SMS spokesperson clarified the circumstances of the reduction in consultant headcount.

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