hostworks profit up 356 percent

February 14, 2007: Hostworks Group Limited – ASX Code HWG
Hostworks Profit Up 356%
Strategic Plan Returns Strong Profitability
Asia-Pacific leader in critical enterprise application outsourcing Hostworks Group Limited has extended its record of consistently profitable growth by reporting its eighth successive half year of profit as sales revenue grew by 15% in the six months to December 2006.

Hostworks recorded a Net Profit After Tax of $0.65m, a 356% increase as compared to the previous corresponding period. The company’s sales revenue topped $10m for the first time in a December half, growing to $10.67m, up from $9.28m in the 2006 first half, an increase of 15%.

Financial highlights for the half year include:

Sales revenue of $10.67m – up 15.0% on pcp
EBIT of $0.76m – up 497% on pcp
EBITDA of $2.30m – up 21.5% on pcp
EBITDA margins improved from 20.4% to 21.6% on pcp
NPAT of $0.65m – up 356% on pcp
Capital Return and share buyback totalled $2.2m in the six months to December 31, 2006
Contracted revenue in hand increased to $30.5m from $28.0m at December 31, 2005.
At the Hostworks Annual General Meeting in October 2006, Hostworks noted that the 2006 result had been affected by investment in strategic initiatives and material costs associated with acquisition activities, including a bid for a large piece of business that was expected to deliver a 2007 NPAT at least equal to the 2005 financial year. The first half confirms that Hostworks is well positioned to meet that goal.


Success of Plan

Hostworks’ success this half was in line with the longer term strategic planning objectives of management. This plan has started to deliver results by leveraging earlier investments and maintaining a focus upon adding significant value to Hostworks customers by managing their critical applications and infrastructure while driving efficiencies. With conditions in this part of the market remaining positive, the company is on track to continue delivering improved results.

New Sales Extend Hostworks Media Market Leadership while Existing Customers Sign New Contracts
In the first half, Hostworks signed a number of significant new contracts that extend its leadership in the online media sector. These include a $2.5m deal with Network Ten to manage its new online presence in 2007 and an outsourcing agreement to manage high-demand online media and ecommerce sites for SBS. Other recent successes include Southern Cross View; a new real estate portal; Harris Scarfe; Carsales.com.au; managing a once-off national online media event with partner Optus and ACP New Zealand. Hostworks also won additional work from existing customers including SEEK, Codan and SA Water.

Hostworks continues to realise new revenue opportunities from sales of ad-serving technology and associated services as the Australian online advertising market in 2006 exceeded $1 billion for the first time. The company used a one-off 2005 ad-serving software sale to realestate.com.au to secure a three-year agreement to monitor the online property specialist’s global web applications and infrastructure.

Larger Accounts, Revenue Share and Outsourcing Successes
Hostworks has succeeded in its strategy of winning larger accounts. Average revenue per customer is now $31,000 per month, up from $24,000 just two years ago.

Hostworks is also engaging with customers in an innovative revenue share model that removes upfront costs in return for a share of revenue in selected high-growth projects and businesses. Hostworks has signed two new revenue share deals for products that will launch shortly.

As well as ongoing success in winning selective outsourcing contracts such as Codan, realestate.com.au and SEEK, Hostworks is partnering with other organisations to bid for much larger outsourcing contracts. This strategic positioning of Hostworks’ critical application management capabilities within best-of-breed teams to pursue larger outsourcing contracts has significant potential within Australia.

New Sales Highlight Hostworks’ Leadership in Online Media
Hostworks is the Asia-Pacific leader in critical enterprise application outsourcing, delivering business systems with guaranteed availability. Customers include AAMI, Codan, Compass Group, Network Ten, SBS, Southern Cross View, News Digital Media, ninemsn, realestate.com.au, Carsales.com.au, SEEK, Sensis, Ticketek and Wotif.com. The company continues to win new business across a range of areas including critical enterprise application outsourcing such as SAP environments, Managed Services, Software as a Service and ad-serving solutions.

New Customer - Network Ten
Hostworks will provide a comprehensive Managed Service to support the significant new online presence for Network Ten's digital division as a key partner in TEN's bid to gain a greater share of the $1 billion Internet advertising market. TEN will launch at least 50 sites in 2007 based on both local programs such as Australian Idol, Big Brother and Thank God You're Here and overseas series. Hostworks' agreement with TEN will grow as the broadcaster positions itself as a major player against competitors in the Australian market.

New Customer - SBS
SBS has signed an agreement to outsource management of its high-demand online media sites to Hostworks in a bid to satisfy huge online spikes that can exceed 10 times normal load. Hostworks will progressively migrate key online assets for SBS, starting with its news sites, from existing infrastructure on to platforms managed by Hostworks. This is the first time SBS has outsourced its online infrastructure.

New customer - Southern Cross View
Hostworks established a new relationship with Southern Cross View, the producer of Australia’s popular Big Brother reality TV show and other major TV shows and radio services. Southern Cross View is the new aggregated online business for Southern Cross.

New customer - Harris Scarfe
Australian department store group Harris Scarfe has signed a three-year agreement with Hostworks to guarantee the availability of its core business systems.

Extra Success with Existing Customers
During 2006, Hostworks has also strengthened its relationship with a number of incumbent customers which have signed new contracts and, in many cases, increased their expenditure on Hostworks services:

Codan
Codan initially engaged Hostworks to provide system infrastructure for its mySAP Enterprise Resource Planning (ERP) system. Codan has extended this engagement by outsourcing more of its technology infrastructure to Hostworks to ensure system availability for its international operations.

Further SAP Managed Services Success
An existing customer has engaged Hostworks to provide a managed SAP Enterprise Resource Planning (ERP) software environment for its national operations. This substantially leverages Hostworks’ investment in SAP skills and capabilities, positioning Hostworks strongly to capture further business in this sector.

SA Water
Australian water utility company SA Water has signed a new contract with Hostworks that ensures the secure location and availability of core business systems. Serving nearly 1.4 million people, SA Water owns and manages South Australia’s water supply and wastewater treatment systems.

Full Year Outlook – $22m Revenues and EBIT over $2m
Hostworks Managing Director Marty Gauvin said 2006 had contributed to a stronger and more diversified company. “The increased use of broadband by businesses and households continues to drive demand for our services,” he said. “A significant achievement in the first half of 2006-07 is that we have replaced revenues generated by one-off sales in 2005-06 with services-based revenue that will recur in future years. As a result, we have sustained our contracted operating revenue at above $30m, a 56% increase in the past two years.

“The stability and strength of Hostworks’ executive management team, leading our expanded consulting and account management team, has contributed to the company’s accelerated growth and rapidly expanding sales pipeline, which is having a positive impact on profitability in 2007.”

With the significant amount of contracted revenue, a healthy sales pipeline and continued focus on operational efficiency and cost control, the Board is confident that full-year revenue will exceed $22m and that the EBIT margin achieved in the first half will be maintained or improved. EBIT for the full year is expected to exceed $2.0m matched with increasing cash reserves.

The Company has not declared a dividend for the half year but does expect to make a distribution following the full year result at least equal to last year’s distribution of 1 cent per share through a combination of dividend and capital return.

Any reference to prior year results has been amended to comply with AIFRS

About Hostworks: www.hostworks.com.au

Hostworks is the region’s leading critical application managed service provider and is responsible for managing the availability, performance and running costs of its customers’ critical business applications. Hostworks does this by providing specialist services designed to ensure IT operations excellence. Hostworks delivers its services on tightly engineered, secure infrastructure which provides optimal performance and protects its customers’ applications and data from security threats. Experience demonstrates that organisations seek Hostworks services for the following key reasons;

Existing IT operations are struggling to meet required company service levels

The business has a desire to reduce cost whilst improving service levels

Company growth is increasing faster than the internal IT division can support

The business has experienced a major disaster or outage.

Hostworks manages critical applications for organisations that depend on quality of service and high availability. Hostworks clients include SEEK, Wotif, News, Sensis, ninemsn, Ticketek, Codan, AAMI, Compass Group and many others. A public company listed on the Australian Stock Exchange (ASX – HWG), Hostworks is an expanding organisation that has experienced strong annual growth.