TRADING UPDATE

Sydney, Australia: 29 May 2008 - SAI Global Limited (ASX:SAI) provides the following trading update leading up to its financial year end on 30 June 2008:

Highlights

  • Favourable conditions continue for SAI’s businesses
  • Integration and restructuring initiatives ahead of schedule
  • Currency movements impacting 2H FY08 results
  • FY08 EBITDA and pre-abnormals NPAT broadly in line with consensus
  • Strong growth in profitability expected in FY09

Key Trends

The key trends emerging are as follows:
  • Generally favourable conditions continue for the company’s businesses, with minimal impact being felt from the adverse macroeconomic conditions currently prevailing in North America.
  • The predicted improvement in the profitability of the Compliance business in the second half has eventuated, with this business anticipated to report EBITDA for the full year in the range of A$5.9M to A$6.2M. This implies second half EBITDA for the Compliance business of between A$4.2M to A$4.5M, up significantly from the A$1.7M reported in the first half.
  • The performance of the Publishing division has remained strong with full year EBITDA growth of around 15% currently forecast.
  • The Assurance business is trading slightly below expectations in the second half, largely as a result of additional resource costs necessary to support the upfront delivery and development of newer programme areas within the faster growing Asian markets and retail driven food safety initiatives.
  • The North American Training business, which recorded a loss in the first half, has returned to profitability in the second half. The performance of the Australian based Training business remains strong.
  • The integration of QMI with the existing North American operations is proceeding well with the Group on track to deliver a greater level of synergy benefits in FY08 than originally anticipated, but at a greater cost in FY08 than that set out in the presentation accompanying the announcement of the QMI acquisition. The greater cost is due to a greater proportion of integration initiatives being implemented in FY08 rather than FY09.
  • In addition to the extra costs incurred in the North American rationalisation and QMI integration exercise, the Group has accelerated its initiative to improve productivity and reduce the Group’s cost base. As a result of these factors total abnormal, non-recurring charges are currently projected to be in the range of A$4.3M to A$4.5M net of related income tax for the full year, up from A$2.2M at the half year. The increase in abnormal charges will translate into higher than previously anticipated savings, as outlined below.

     

    The extra abnormal items of A$1.3M to A$1.5M above consensus expectations of around A$3M, relate predominantly to the following items:

    • QMI integration (A$0.7M to A$0.9M), including a rationalisation programme undertaken within the QMI business which was originally projected to occur in FY09.
    • Cost cutting initiatives in the Compliance business (A$0.4M) including the closure of the Norwich office and the integration of the 80-20 business.
    • Other items (A$0.2K), including further headcount reductions.

    A summary of the nature of the abnormal costs and the associated annualised savings, on a net of tax basis, is set out below:

      Cost A$M Annualised Savings – A$M
    Costs incurred in reducing company overheads (primarily employee related) 3.0 3.7
    North American rationalisation and integration of QMI 1.3-1.5 2.7-2.9
      4.3-4.5 6.4-6.6

    As noted above, the restructuring and other operational initiatives have gathered momentum in the second half. The acquisition of QMI provided the catalyst for the restructuring of the Group’s North American Assurance and Training businesses and this integration is proceeding ahead of plan. In total, five sites will be closed across North America including three small QMI offices in addition to the two SAI Global offices in Southbury and Maumee.

    The Compliance business has sought to remove some overlap in production capability which existed across the North American and UK sites. This will result in the closure of the Norwich facility in the UK, which will be completed before 30 June 2008.

  • The continuing strength of the Australian dollar relative to the UK pound (GBP) and US dollar (USD) has adversely impacted the second half trading performance. The guidance provided in February 2008 was based on assumed average exchange rates for the second half of GBP 0.4350 and USD 0.8900. Actual average exchange rates for the second half are currently forecast to be around GBP 0.468 and USD 0.926. The combined impact of the projected higher exchange rates is expected to reduce group revenue by around A$2.7M and Group EBITDA by approximately A$0.5M, compared to what would have been achieved, had the projected rates assumed in the February guidance prevailed.

FY08 Guidance

Should trading for May and June meet current expectations, and exchange rates remain broadly unchanged from today’s rates, projected outcomes for the year ending on 30 June 2008 are as follows:

  • The Group forecast for FY08 EBITDA, on a pre-abnormal basis, is in the range of A$48.0M to A$51.0M.
  • The expectation for reported NPAT:
    • before the impact of the abnormal charges, is in the range of A$18.8M to A$19.1M.
    • after the impact of the abnormal charges, is in the range of A$14.3M to A$14.8M.

Outlook for FY09

  • Based on current trends, the Group expects strong growth in profitability in FY09, broadly in line with current market consensus for net profit after tax, driven by:
    • Strong underlying demand for the Group’s services;
    • Benefits of the integration and restructuring initiatives being realised in full;
    • A resurgent Compliance business
  • The Group expects limited opportunities for growth in the Publishing business in FY09, this business having enjoyed significant growth in FY08 on the back of sales of the Wiring Rules.
  • Further guidance on FY09 will be provided with the Group’s full year FY08 results in August.
  • Based on the projected business mix in FY09, the Group estimates the EBITDA impact of movements in the US dollar and UK pound from today’s rates to be as follows:
    • +/- 1 cent movement in AUD:USD, approximately A$100k
    • +/- 1 pence movement in AUD:GBP, approximately A$150k

For further information:

Mr Geoff Richardson
Chief Financial Officer
SAI Global Limited
Tel: +61 2 8206 6805
Mobile: +61 (0) 429 314 698
Email: geoff.richardson@saiglobal.com

Mr Tony Scotton
Chief Executive Officer
SAI Global Limited
Tel: +61 2 8206 6182
Mobile: +61 (0) 419 527 592
Email: tony.scotton@saiglobal.com