Seek (SEK) shares fell heavily yesterday after it revealed problems with a key NSW contract in its latest trading update.
Seek revealed there were issues relating to an upgrade to TAFE NSW IT systems (part of its Seek Learning Systems) which would impact the company’s second half financial performance.
The impact would mean Seek’s underlying second half net profit will be flat and in line with the first half result.
That means the underlying second half result will be around the $94.1 million earned in the December half year.
In announcing the first half result in February, the company had indicated it saw second half profit being “moderately’ higher than the first half.
And Seek also warned yesterday that the 2015-16 result would see earnings growth held back (‘moderated’) by “aggressive re-investment across the group” and VET FEE-Help reforms within education.
The shares were down 12% at the close yesterday at $14.48.
SEK 1Y – Seek sees soft second half
“The main cause of SEEK Learning’s results being lower than our prior expectations relates to one-off issues with an IT systems upgrade undertaken by TAFE NSW,” Seek chief executive Andrew Bassat said in yesterday’s update.
"SEEK Learning had fulfilled its sales obligations but TAFE NSW’s IT issues resulted in errors and significant delays in the enrolment process, ultimately leading to incomplete enrolments and very high withdrawal rates."
The issue has been ongoing and until recently Seek believed it would be resolved before it had a financial impact, Mr Bassat said.
"Our [full year] results in SEEK Learning have also been affected by a competitive environment. We have implemented a series of strategic and operational initiatives to drive improved performance," Mr Bassat said.
"In the education sector there are a broad range of VET FEE-HELP reforms that have been announced. SEEK is supportive of overall VET FEE-HELP reforms that protect the education sector.
"Reforms implemented to date have not impacted SEEK Learning. However, other announced reforms will have a negative financial impact on certain SEEK Learning partners when they are finalised and implemented.”
And looking to the new financial year, Mr Basset justified the heavy investment.
"In Australia, SEEK’s reinvestment to drive a greater share of placements has led to improved outcomes for hirers, jobseekers and is positively contributing to revenue. In FY16, SEEK will launch a number of new products and services. We are confident that the re- investment in new initiatives combined with SEEK’s market leadership across its large and growing markets will generate a strong return on investment,” Mr Basset said.
Seek said second half revenue growth is expected to remain solid, but before interest tax depreciation and amortisation will be “moderately lower” than revenue growth due to re-investment.
Seek expects its learning division to report EBITDA to come in between $31 million and $33 million.
Seek re-affirmed all other guidance statements from the first half.
