It’s an old story: a new CEO comes into a moderate performer and a few months later out comes the axe and a bit of slash and burn, a big loss and the decks are cleared so the new boss can look good.
And so it was with consulting engineer Coffey International which yesterday revealed a loss for the 2011 financial year in the wake of the clean out by newish CEO John Douglas who started in the top job last March.
The market loved the story, pushing the shares up 40.8%, or 20c, at one stage to 69c, before they cooled somewhat and ended at 61c, up 12c on the day, or 24.5%.
Yesterday’s statement said the company will incur one-off restructure costs in the current year of between $10 million and $12 million, above the previously advised $7.8 million.
There will be non-cash goodwill impairment charges of between $60 million and $65 million.
That will produce a loss in anticipated reported earnings before interest, tax, depreciation and amortisation (EBITDA) of $38 million to $48 million in the year to June 30.
Full year underlying EBITDA is expected to be between $29 million and $32 million.
And he confidently forecast a jump in profit in the 2012 year (underlying that is).
"The goodwill impairments and one-off restructure costs are certainly disappointing but they signal the return to a more disciplined focus on what we are good at, where the best opportunities lie and above all, quality of earnings.
"We are confident that Coffey can deliver a material improvement in underlying EBITDA of at least $45 million in FY12.
"This outlook includes the full year benefit of the $18 million of cost savings initiated this year; a simplified business structure with a flatter management structure focused on, and directly accountable for, earnings growth in our two major businesses, particularly Geosciences," Mr Douglas said.
"The strategic review identifies the three key businesses that are to be the focus of Coffey’s ongoing operations while plans for the remaining businesses will be finalised by September this year.
"Mr Douglas has refined and simplified Coffey’s management structure, building on the management changes and cost savings initiatives undertaken at the direction of the Coffey Board in December 2010.” (Not a shy soul, is he?)
Mr Douglas said, "The outcomes of the strategic review confirm the Board and management’s confidence in the strength of Coffey’s key businesses and markets but they also reflect the reality that the Company had lost focus on its core competencies and operating disciplines".
He said the company will now be focused on its two largest businesses, Geosciences and International Development, and a scaled down Project Management business.
Geosciences (1,500 employees / 58% EBITDA): represents the Company’s significant expertise across the existing complementary businesses of Coffey Geotechnical, Coffey Environmental, Coffey Information and Coffey Mining. The business has a substantial Australian presence and a meaningful footprint in major international markets. This gives the group exposure to the mining, oil & gas and infrastructure sectors with diverse revenues generated through the provision of site and geotechnical investigations, analysis and design; specialist environmental, social and safety performance solutions.
International Development (1,400 employees / 28% EBITDA): delivers revenues derived from long-term project contracts with donor Governments delivering a reliable and high quality earnings stream. Coffey has established an excellent reputation internationally for these services.
Project Management (200 employees / 10% EBITDA):
provides consulting and advisory services on complex building projects. It is being substantially scaled down to focus on capturing opportunities expected to flow from the eventual cyclical improvement in the Australian domestic and New Zealand commercial property sectors.
And yesterday’s statement revealed there were other parts of Coffey still under review.
"Several other operations including Rail, Commercial Advisory and the Los Angeles Environments businesses, representing only 4% of EBITDA, and which are not strategically aligned to the broader group are under review.
"Divestment of the Los Angeles based Environments business is already underway. Mr Douglas said that outcomes for the other businesses could include partial or complete divestment, hold and run for profit or operational re-alignment with the key businesses. Final plans are expected to be determined by September this year."
But the company also drew a please explain from the ASX, with the company reply coinciding with yesterday’s update on the review and the losses.
The ASX had asked the company to explain a recent price fall which had seen the shares fall from 58c on May 27 to 48c last Friday, "and an increase in the volume of trading in the securities over this period".
The company pointed out that the details of the review were considered by the board on Tuesday.
Meanwhile, signs of growthat last for struggling drugs distributor and pharmacy group, Sigma Pharmaceuticals which says it is trading strongly so far in its 2012 financial year (which ends on January 31).
The company’s AGM was told in Melbourne yesterday that Sigma now has a greater market share and lower costs sin
