The recession and rising tide of unemployment has taken its toll on labour hire company, Skilled Group which yesterday revealed a 15% cut in earnings.
That underlined with a near 20% fall in second half revenues as the number of people out of work has risen monthly in 2009.
The news wasn’t greeted happily by investors who sold down the shares by almost 15% or 23c to $1.35.
Citing "a rapid deterioration in business conditions", Skilled said its 2009 financial year earnings before interest, tax, depreciation and amortisation (EBITDA) was now expected to be $87 million to $92 million, down from the previous guidance of $100 million-$110 million.
Reported net profit after tax (NPAT) has been cut to the range, $27 million to $30 million from $34 million-$41 million.
Depreciation and amortisation is estimated to be $21 million.
Underlying NPAT has been revised to $34 million to $37 million from $41 million to $48 million.
That would mean net profit after tax would be around the 2008 level of $33 million before abnormals.
Skilled chief executive Greg Hargrave said the demand for casual labour and outsourced maintenance services fell dramatically in the third quarter as clients moved rapidly to reduce costs as the economy flagged.
“We now expect second half revenue to be around 18% lower than the first half.
“As stated at our half year results in February, business conditions began to soften in November and December.
"Whilst January is usually a quiet month following the Christmas break, trading did not recover in February.
"Demand for labour significantly deteriorated in March and these challenging conditions have continued into April.
"Whilst we had expected a weaker second half, the rapid decline in business conditions is unprecedented in our 44 year history.”
But Mr Hargrave doesn’t expect a further slowdown.
"We had anticipated a slower second half, but the decline in business conditions has been more significant than we had expected. Despite reacting quickly to stay ahead of the curve, the decline in revenue over the past three months has necessitated a revision to our earnings guidance.
"Current trading conditions remain difficult and the short term outlook is uncertain, but the dramatic rate of decline has slowed and we don’t expect conditions to deteriorate further.”
“We are beginning to see evidence of our clients consolidating their supplier base and migrating to stronger, safer, more sophisticated and capable suppliers.
"We are working closely with our key clients to manage the challenging environment and provide productivity and workforce solutions. Our continued focus on proactively managing costs and our business structure will ensure that we are well positioned to capitalise on the challenging times ahead.
"When the economy begins to recover Australian companies will need immediate access to labour and we will be well placed to take advantage of the improvement in trading when it occurs.”
Skilled Workforce & Maintenance Services includes Skilled brand, TESA Mining, Extraman and ATIVO and represents approximately 60% of the Group’s revenue.
Revenue in Q3 was $243 million which is 22% lower than the same period last year:
But that was offset by improved revenues elsewhere:
"Other Brands comprises OMS, Swan Contract Personnel, Excelior, Origin Healthcare, Mosaic and PeopleCo. Revenue in Q3 was $213 million which is 22% higher than the same period last year principally due to stronger contributions from OMS and Swan Contract Personnel:
"To date, annualised cost savings of approximately $20 million have been achieved by closing or merging branches, reducing staff head count, reducing discretionary spending such as marketing and sponsorship and deferring some business projects.
"Executive staff and the Board reduced their salary by 10% from 1 March.
"In addition, from 1 April all other office based staff temporarily reduced their working hours and salary by 10% for a six month period when business and economic conditions will be reassessed.
“These measures will achieve cost savings of around $3 million for the 2008/09 financial year," the company said.
The company’s debt is now expected to be around $260 to $280 million at June 30, 2009, down from $299 million at December 31, 2008.
