Spotless Ltd (SPO) is now another IPO flop from private equity to go with the likes of Myer and Dick Smith.
In fact Spotless, the services and contract cleaning company has been a perennial poor performer, both in and out of private equity ownership.
This time around it has been a big disappointment for investors since returning to the ASX in mid-2014 in a $1 billion float.
The issue price of the shares at the time was $1.60 as it emerged from the ownership of private equity firm Pacific Equity Partners, which took it private in 2012.
The shares have been under pressure since late 2015 when a surprise profit downgrade was revealed and the shares plunged from $2.20 on December 1 to $1.06 seven days later.
Yesterday saw an 13.6% slide to 82 cents and original investors are facing a loss of close to 50% (that’s if they stayed around).
The board and management is now embarking on an expensive clean-up of its own contract book with $423 million of write-downs, and it has permanently slashed what it will pay out in dividends.
CEO Martin Sheppard is attempting to remake the business and tilt it away from small, low-margin contracts which are a big drain on profit margins and a big driver of intractable costs.
He said yesterday Spotless had too many small, underperforming contracts and they were a big constraint.
The company was undertaking a “reset” to try and deliver growth “without the distraction from underperforming contracts in highly contested markets which have low barriers to entry,” he said in yesterday’s statement.
The bottomline loss for the half after the write downs was $358 million. This compared with a net profit after tax of $48.1 million in the first half a year ago. Total revenues were fell 9.4% to $1.46 billion.
The company has sliced its dividend by 61% and will pay shareholders an interim dividend of 1.35 cets a share, down from 3.5 cents a year ago.
The company said yesterday the board has also decided to permanently lower the payout ratio for future years to between 40% to 60% of net profits, down from a previous benchmark of 65% to 75% of net profits.
Much of what the board and CEO are ow attempting should really have been done under private equity ownership – after all isn’t that PE’s claim to fame – to be able to manage costs, structures and drive profits in a more ruthless manner, without having to worry about shareholders. Pacific Equity seems not to have done very much in the two years or so it controlled Spotless.
