Skilled Lower, Pacific Brands Higher

By Glenn Dyer | More Articles by Glenn Dyer

Skilled Group, the labour services and hire company, remains confident of posting higher earnings this financial year despite a drop in first half profit.

The company said yesterday that interim earnings after tax fell 9.4 per cent fall to $11.13 million, but earnings from continuing operations only dipped 4.4 per cent.

However the more accurate measure of earnings before interest, tax, depreciation and amortisation (EBITDA) from continuing items showed a solid 15.4 per cent rise to $26.47 million, while EBITDA from all businesses rose 13 per cent to $20.3 million.

As a result of the growth at operational level and adding in the impact of the five acquisitions made since last August (at a cost of around 4170 million), Skilled now expects EBITDA to grow to $66 million to $69 million for the year to June 2007, and net profit to a range of $29 million to $32 million.

That compares to the previous guidance for EBITDA of $62 million to $65 million: so it’s around an eight per cent improvement.

But SKE shares fell sharply after the result on the headline news, falling 37c to a low of $5.85 before recovering to around $6.18, down around 14c on the day.

The company blamed the lower result on the cost of the expansion program late last year

“Net profit after tax (NPAT) from continuing operations was down 4% to $11.1 million due to: a higher interest expense as a result of increased borrowings to fund acquisitions; increased depreciation and amortisation, a consequence of the Catalyst and TESA acquisitions; an increase in the effective tax rate; and acquisition integration costs”.

All those are fixable with the company in the midst of renegotiating its debt with lower costs but the higher costs did worry some analysts who are concerned that they might continue into this half.

CEO Greg Hargrave said the company was looking for an improved performance in the current half.

“We are expecting a stronger second half, buoyed by continued growth in Western Australia and Queensland and improving conditions across the other states,” he said.

“Our strong performance in the first half of the 2006/2007 has been underpinned by solid organic growth from our Skilled Brand. We continue to benefit from skills shortages and the trend to outsource labour, and our superior client value proposition has enabled us to increase or hold our gross margins.

“Since August 2006 we have undertaken five acquisitions at a cost of around $170 million. These acquisitions have provided significant strategic benefits including increased exposure to the black coal mining and oil and gas sectors. In addition, they have provided us with a quality team of people, a deeper pool of field employees and expanded our client base.”

“The integration of TESA and Catalyst is progressing well and I am pleased to report that we are on track to realise our synergy benefits by the end of year two. We have a team dedicated to ensuring a smooth integration and building our expertise in this important area.

“Momentum is building and we expect a stronger result in the second half as we benefit from the commencement of several infrastructure projects. Conditions are more buoyant across several states and our internal focus on improving our service offering to our clients and our field employees is translating to increased market share in our key industry sectors.”

Revenue for the first half rose 25 per cent to $607.7 million. Skilled Group will pay an interim dividend of eight cents per share, up from seven cents per share last year. Earnings per share fell to 10.7c from 12c.


Shares in clothing and bedding retailer Pacific Brands hit a new 12 month high of $2.82 yesterday in the wake of a slightly better than anticipated interim result.

The shares finished 14c up at $2.86 as the company said it expected to see the profit momentum from the first half, continue in the next half to the end of June.

But the shares were probably reacting more to the news of a major acquisition: the purchase of the Yakka group for an, as yet, undisclosed amount.

The acquisition, which will be completed later this year if due diligence is OK, will boost sales by upwards of $300 million in a full year and lift earnings.

Pacific is best known for brands like Bonds and Berlie, Dunlop and King Gee and it said net profit was $53.8 million, up 6.1 per cent on the previous corresponding period of 2006.

Net sales increased by 4.1 per cent to reach $868.6 million and the company said that was a good performance given the rate rises last year, the last being in November.

Earnings before interest and tax (EBIT) increased by 6.2 per cent to $93.5 million.

Interim dividend is 8c a share (7.5c previously) on earnings per share of 10.7c.

Yakka Group, specialises in the supply of industrial and corporate footwear, which is where PBG’s King Gee also operates in part.

Pacific said Yakka is a private company that was founded in the 1930s and has traded continuously for more than 70 years. Yakka is the holding company for a number of subsidiary companies distributing industrial and corporate workwear, casual wear, jeans and footwear in Australia and New Zealand.

Yakka owns and manages a range of workwear brands, including Yakka, Hard Yakka, and Can’t Tear ‘Em. It also manages a number of everyday outerwear brands including Weekenders, Mustang, Wrangler Jeans, Lee Jeans and Riders by Lee Jeans.

Yakka also has a major presence in the corporate and defence apparel sectors in Australia and New Zealand with Neat ‘n Trim, Dowd Corporation and Stylecorp as suppliers to major corporate customers.

Commenting on the acquisition, the CEO of Pacific Brands, Paul Moore said, “This will be a sound acquisition for Pacific Brands cementing in place our strategic platform for the future. This is a business we understand well with

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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