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1 RXP - acquisition of The Works 1 August 2017

2 RXP a quick snapshot Revenues of $140+m, ~700 people Demonstrated delivery capability based on specialist verticals 10+% organic growth Net cash $2.2m Increasing cash-flow generation Fully franked progressive dividend policy in place Increasing access to debt and funding facilities Y1 Y3 Today Tomorrow. IT Services Technology Services Digital Services Digital Partner Focused on accelerating the push into Digital Services creative/ucd/ux/ui and data/information/insight Client diversity Location diversity Capability enhancing Profitable Cultural fit Page 2

3 Acquisition Overview The Works Sydney is one of Australia s leading digital agencies The acquisition extends RXP s digital services delivery capability, increases presence in NSW, and further diversifies customer and revenue base 61 staff; FY18 expected to generate $16.5m in revenue and $3.9m in EBITDA Total purchase price capped at $33m ($25m fixed, up to $6m based on EBITDA in 12 months, additional payment based on EBITDA in 24 months) Purchase to be funded by mix of placement (~50%), existing cash reserves, and debt facilities Deal is expected to be EPS accretive by 10+%, with synergies of $1.5m Significant opportunities for cross-selling combined capabilities across current client base RXP FY17 preliminary results Revenue: $140.5m (+11%) Underlying EBITDA: $19.5m Underlying EBITDA margin: 13.8% Page 3

4 The Digital Economy recognising the convergence of Consultancies and Agencies $79 billion - Australia s rapidly growing digital economy has been valued at $79 billion, and 5.1% of GDP bigger than traditional industry sectors such as agriculture, retail and transport $139 billion the forecast value of the digital economy by 2020 (7.3% of GDP) $75 billion consumer benefits in terms of greater choice and convenience driven by digital Businesses are recognizing the convergence of Consultancies and Agencies Accenture buys The Monkeys and Maud to strengthen Accenture Interactive s customer experience capabilities, as well as the services Accenture Interactive provides to chief marketing officers and chief digital officers Deloitte Digital announces acquisition of awardwinning advertising agency Heat will redefine how businesses deliver their customer journey PwC completes acquisition of Fluid strengthens the talent and breadth of the firm s consulting services by bringing together our Digital, Analytics and Customer capabilities to help companies accelerate their business transformation and stay ahead Page 4

5 The RXP Strategy Moving left to right. Constantly evolving Working with clients to increase efficiencies, introduce new revenue streams and leverage insights to drive connection with people and grow their businesses through the combination of creativity, user centred design, people, process and technology Year 1 Year 3 Today Tomorrow.. IT Fulfilment Technology Services Digital Services Digital Partner Focused on providing people to clients to support their Information Technology needs Typically interfacing with CIO groups and procurement teams Focused on providing people and solutions to clients to support their Broader Technology (including Cloud based) needs Typically interfacing with CTO/CIO groups and procurement teams Focused on providing solutions to clients. Combining people, process, creative thinking and technology to delivery the outcomes our clients need Typically interfacing with Marketing, Product, Customer Care and Finance groups as well as CDO/CIO/CTO and procurement teams Becoming a trusted Digital Partner for clients enabling them to maximize the benefits of the digital economy Digital technologies contributing $139bn to economy by ACS Australia s digital economy is set to grow to $139 billion (7% of Australian GDP) by ARN Driving an increased level of revenue from project based/outcomes based digital solutions Constantly evolving to ensure we have the right mix of commoditized and higher value work = Move to Price-to-Value Deepening our client relationships; partnering rather than providing Page 5

6 The RXP Acquisition Framework Y1 Y3 Today Tomorrow. IT Services Technology Services Digital Services Digital Partner Focused on accelerating the push into Digital Services creative/ucd/ux/ui and data/information/insight Client diversity Location diversity Capability enhancing Profitable Cultural fit Primary focus areas over the past 12+ months Page 6

7 The Works a strong fit with RXPs evolving business Date Incorporated: 17 Sep 2002 Shareholders (equal shares): o Kevin Macmillan; Damian Pincus; Douglas Nicol Sydney based business Strategy/Consulting Brand Strategy Brand Development Planning Advertising Strategy No. of People: 61 People (>85% permanent) FY18 Budget: Revenue $16.5m (with $8.5m on retainer), EBITDA $3.9m Digital & Technical User Centred Design User Experience User Interface Online/Mobile Dev. Execution Creative Production Content Production Project Management Analytics IP/Product: On Message tm (BOT conversational platform) CX Agency of the Year 2017 Adnews Awards Independent Agency of the Year 2017 B&T Awards Page 7

8 Strategic Rationale Aligns with our strategy Dramatically enhances our client offering Increase our end-to-end digital services delivery capability Extends our digital customer experience delivery capability by connecting brand strategy and creative to our existing client work (Strategy g Brand g Creative/Campaigns g User Centred Design g UX/UI g Delivery g Technology g Support) Means we are at the table earlier in the value chain Means we will have a holistic customer experience offering Means we become more of a strategic partner than a provider (deeper client engagement) increasing level of retained revenue increasing value of work, moving further away from commoditisation Significant revenue opportunities - cross selling across current client base (strong client and sector synergies) Further diversifies customer and revenue base Increases our presence in NSW Further enhance our leadership capabilities - particularly in the digital space EPS accretive 10+% Page 8

9 The Works how does it add to and fit with RXP Y1 Y3 Today Tomorrow. IT Services Technology Services Digital Services Digital Partner Focused on accelerating the push into Innovative Digital Consulting creative/ucd/ux/ui and data/information/insight Client diversity Location diversity Profitable Capability enhancing Cultural fit We imagine We ideate and create unique brand propositions, strategies and digital campaigns to drive engagement and discoverability Page 9

10 The Financials

11 RXP FY17 preliminary results Revenue: $140.5m (+11%) Underlying EBITDA: $19.5m Underlying EBITDA margin: 13.8% Underlying EPS cps: 8.9 Cash conversion: 99% (operations as % of EBITDA, excl. interest, tax) Cash as at 30 June: $17.6m Net cash: $2.2m Forecast FY18 revenue growth 10+% (pre acquisition) Forecast FY18 margin 13.5+% (pre acquisition) FY17 final dividend to be declared with audited results 16 August 2017, along with update on the company s capital management plans Page 11

12 Pro-Forma P&L FY18 combined* Annualised combined Pro-forma P&L Assumptions RXP The Works* Combined* FY18 Combined assumes settlement 1 August Financials metrics (FY18 BUDGET numbers) Revenue Revenue Synergies 5 EBITDA EBITDA Synergies 1.50 Margin 13.8% 23.5% 15.2% 15.1% *Note: normalised FY18 numbers Page 12

13 Acquisition Metrics Payments: Initial payment of $25m (70% upfront, 30% in 12 months) Earnout Payments: Additional payment after 12 months: up to $6m capped based on actual FY18 EBITDA Additional payment after 24 months: based on actual FY19 EBITDA, with overall purchase price capped at $33m FY18 EPS accretive by 10+%, driven by: EBITDA from The Works $3.9m Synergies $1.5m Transaction funding arrangements (~50% placement, remaining with debt/cash) Synergies of $1.5m EBITDA in FY18 are: Excluded from earnout calculations Achieved via: Cost savings Additional revenue through cross sell/up sell to exiting clients ($5m revenue) Page 13

14 Capital Raising Details & Impact

15 Funding and Capital Raising Overview Initial payment of $17.5m to be largely funded by institutional placement $16.9m placement to be one tranche comprising the issue of 21m new $0.805 (and in accordance with Listing Rule 7.1) Placement expected to be completed by Thursday 03 August 2017 Balance of initial payment to be paid from existing cash reserves and debt facilities, noting current net cash Future payments to be funded by a combination of debt and cash More efficient, flexible and cheaper debt facilities being negotiated with banking providers Page 15

16 Transaction Summary Consistent with our stated acquisition strategy Dramatically enhancing our client offering Positive financial impact Focussed on accelerating the push into Digital Services and Creative Digital Consultancy Accelerates growth in Sydney Extends our digital customer experience delivery capability connecting brand strategy and creative to existing client work Increases our end-to-end delivery capability Supports the drive to partner rather than provider (deeper client engagement) increasing level of retained revenue increasing value of work, moving further away from commoditisation EPS accretive in FY18 by 10+% Combined revenue in FY18 $170+m; EBITDA $26+m Flexibility to fund future opportunities Maintains conservative gearing Provides capacity to fund future acquisitions to supplement organic revenue growth Supports progressive dividend policy Page 16

17 Disclaimer This presentation was not prepared for and should not be relied upon to provide all necessary information for investment decisions. Some of the information contained in this presentation contains forward-looking statements which may not directly or exclusively relate to historical facts. Although great care & diligence has been taken to ensure the accuracy of this presentation, RXP Services Limited gives no warranties in relation to the statements and information contained herein and disclaims all liability arising from persons acting on the information and statements in this presentation. Due to the dynamics and changing risk profiles of investment markets, RXP Services Limited reserves the right to change its opinion at any time. All investors are strongly advised to consult professional financial advisors whose role it is to provide professional financial advice, taking into account an individual investor s investment objectives, financial situations and particular needs. Page 17

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