Even though the economy missed the slump and employment is starting to improve, Skilled Group, the country’s dominant labour hire and services group, has seen its shares sold off heavily in the wake of an update that warned 2010 earnings won’t make the grade.
Skilled sent a tremor through its investors Friday when it warned in a three page update that the profit levels expected for the current year, would not be reached.
That was only months after it said the worst appeared to be over in guidance issued during an $80.9 million, $1.50 a share capital raising.
It’s the sort of profit warning we may see a bit more of in the next couple of months as companies rule off the December 31 accounts and start issuing trading updates.
It’s something to remember as companies start updating trading over the next month to six weeks.
The surprises will be scattered, but they could be out of the blue in some cases, as Skilled’s update seems to have been, so far as the market is concerned.
Yesterday’s ANZ job ads figures revealing a strong rise in the number of ad also showed that part time work is stronger than full time employment.
Skilled shares fell 16% on Friday to $1.86, and yesterday fell a couple of cents, then rose four to $1.90, before again easing to close off half a cent at $1.855.
The company said analyst forecasts that it would make profits of $88 million, before interest, tax and depreciation in 2010, now won’t happen.
Instead, the company said parts of its business were yet to experience an improvement in economic activity and its average revenue run rate was lower than in the second half of last financial year.
"In the July – October 2009 period, SKILLED Group has been operating at an underlying EBITDA dollar run rate modestly above that of the average 2H FY2009 and this run rate is progressively increasing.
"Group revenue run rates are also improving but currently are slightly below the average revenue run rate of 2H FY2009.
"Notwithstanding the improving performance, given the low starting run rates for EBITDA and revenue, current internal forecasts suggest that it is unlikely that the average analyst forecast for FY2010 of $88m EBITDA will be reached.
"While it is clear that the economic and hence market environment is improving this is yet to impact all areas of our business."
The company said that analysts were getting too optimistic and running ahead of reality.
And the final comment in the update told us Skilled has all but abandoned 2010.
"Notwithstanding the differing responses of SKILLED Group’s business areas to an economic recovery that is still gathering strength, the Group financial trajectory is positive and the foundation is being laid for a strong performance in FY2011 and beyond."
Skilled Group’s said its labour hire division, which accounts for about half of the business, was performing and growing with the economy.
"Workforce Services (blue collar labour hire and 50% of SKE revenue) is experiencing a strong rebound with weekly revenue up 18% from the start of July 2009. This is above typical seasonal movements.
"Other staffing businesses are showing mixed performance since the beginning of the financial year with strong growth in the PeopleCo brand (small – medium enterprise staffing), flat performance in Mosaic (white collar recruitment), and minor declines in SWAN (technical professionals contracting) and Origin Healthcare (healthcare staffing).
"In aggregate we expect Staffing Services to continue to grow through the rest of the financial year."
But the areas of the business that depend on larger scale capital investment, such as its placement services in engineering and the oil and gas industry, were not performing as well.
In the Engineering and Marine Services area:
"ATIVO (maintenance and project engineering) is yet to rebound although its order book is building.
"OMS (offshore marine manning and vessel services) is running a little below the average of 2H FY2009 and is yet to show a growth trend. This is due to a weak vessel market driven by a temporary global slowdown in oil and gas offshore expenditure, offsetting good growth in revenue and profit in the manning area.
"We anticipate performance improving through the 2nd half of this financial year and expect this business to deliver full year results around that of FY2009."
The sluggishness in the above areas, especially in Western Australia, in the face of strong activity in iron ore and the gathering LNG boom, tells us that expectations of a surge in jobs in the state is slow to appear.
Jobs figures for September and October from the Australian Bureau of Statistics have shown a slow rebound in jobs growth in that state, and in Queensland.
The November figures are out on Thursday.
