Investors got a glimpse yesterday why Programmed Maintenance Services (PRG) is back talking to Skilled Group (SKE) about a possible deal – five months after Skilled rejected the idea.
It’s all about the slow down in the resources sector in the past two years – Skilled has already felt the bite and the annual result from Programmed yesterday revealed it had been hit hard as well.
The only bright spot was an upturn in the company’s property and infrastructure business where revenue and earnings rose and on which the company intends concentrating in the next few years.
But so will its competitors, such as Transfield Services, UGL and companies like Downer EDI.
The improved performance in the property and infrastructure business was not enough to offset the impact on the demand for labour and services from the resources sector, from hard rock miners all the way through to oil and gas operators and explorers.
Programmed said earnings before interest and tax (EBIT) by the Property & Infrastructure division were 16% above FY14, but lower earnings by the Resources and Workforce divisions resulted in a decline of 5% in group EBIT before non-trading items to $50.1 million from $52.8 million in 2013-14.
Programmed, (which revealed on Monday that it had resumed talking to Skilled about a possible $700 million-plus marriage) reported a 16% slide in net profit after tax to $25.7 million for the 12 months to March 31.
Understandably given the impact of the mining and resources slowdown, group revenues were flat on 2013-14’s level of at $1.43 billion.
Despite the weak result Programmed nudged the final dividend by 4.5% to 11.5 cents a share, making a total for the year of 18 cents a share, up from the 17 cents a share in 2013-14.
Programmed CEO Chris Sutherland described it as a “reasonable result” in challenging markets and said the company was concentrating on trying to win new work in sectors of the economy which were forecast to grow solidly over the next decade.
He said the company had already secured new long-term work in education, social housing, defence, tourism and agriculture over the past 12 months and they were areas forecast to grow over the next 10 years.
‘We are on the short lists for the Western Australian schools PPP (public-private partnership) and the new federal courts PPP in ACT, and are positioned to benefit from further PPP projects,” he said.
‘We are also having more success with selling a greater range of maintenance services to our property customers."
But that’s for the future – the year result shows the adverse impact on Programmed from the resources downturn – with expectations that will continue to be the case for much of the coming year.
Programmed’s resources division suffered an 18% slide in earnings before interest and tax (EBIT) to $20.1 million, with revenues slumping 19% to $248 million.
Programmed said it had been hit by a suspension of capital spending by offshore oil and gas operators, with demand for vessel management, manning, catering and logistical services dropping by 25% in the past few months as the oil price plunged.
The group’s workforce division was hit even harder as the blue collar economy sagged. EBIT slid nearly 30% to $7.5 million on a 1% rise in revenues to $377 million.
The bright spot for Programmed was its Property and Infrastructure division which increased EBIT by $32.4 million. But net profit after tax before one-off restructuring costs was down 4.7% to $30.4 million.
On the possible Skilled deal, Mr Sutherland said there was no certainty that a transaction would occur from the continuing talks with Skilled, but it made sense for the two to join forces in a difficult economy.
"We believe the strategic rationale for combining the businesses is strong," he said.
A merged entity would be stronger and more competitive and be fully diversified across all sectors of the economy, he said.
Programmed shares rose 3% to $2.63, not a bad result given the widespread weakness on the ASX yesterday.
