The staffing, maintenance and facility management provider, Programmed Maintenance Services Limited (ASX:PRG) released a business update and outlook for FY16.
The company stated that its customers from retailing, tourism, transportation and manufacturing industries have shown a weak demand in the past few years. However, the demand is now rising, as these companies have started hiring more people and are expanding their assets. Programmed also stated that it has seen an increase in demand for its staff and maintenance services, which now represents two-thirds of group revenue.
On the other hand, the demand for labour in energy and resources sectors has declined as the companies have implemented cutbacks in their exploration and operating budgets, following the rout in commodity prices.
In October 2015, Programmed acquired Skilled Group, in order to improve customer diversification and lower its unit costs along with achieving organic growth. Programmed mentioned that the integration of the acquired business is proceeding ahead of its plan, as it expects to realise cost savings of approximately $30 million per annum, by 31 March 2016.
Programmed’s managing director, Chris Sutherland, explained more about the business performance: “The further reduction in demand from the resources sector, an in particular from the offshore oil and gas sector following the recent steep decline in oil and gas prices, has impacted both the former Programmed and Skilled parts of the business. In this environment, the benefits of combining both organisations and realising cost savings are particularly important, while the company delivers its long-term strategy to develop a larger scale, more efficient, leading provider of staffing, maintenance and facility management services serving all sectors of the economy.”
Programmed anticipates to report group EBITA for FY16 of approximately $65 million, before one-off non-trading costs and amortisation.
The company also expects to recognise a non-cash impairment charge of approximately $75 million, due to the sale of vessels operated by its Marine division. Furthermore, a non-cash amortisation expense of approximately $10 million is forecasted to arise from the acquisition of Skilled and the accounting value of brands, contract intangibles and customers. Depreciation and interest expense for FY16 are expected to be approximately $16 million and $12 million respectively.
The gloomy outlook has sent PRG sliding more than 6% upon opening, as at 10:10 AM (AEDT).
Author: Simon Herrmann
Feb 04, 2016
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.