Profits up over 24% in H1 2019 for Ashley Services Group
Ashley Services Group Limited has reported a statutory after-tax profit from continuing operations of $2.71m for the half year to 30th December 2018, representing an improvement of $0.53m or 24.6% on the prior corresponding period (pcp) (1H 2018: profit $2.17m).
Whilst headline revenue of $148.17m was down by $21.29m or 12.6% on the pcp (1H 2018: $169.46m), the prior period included $30.63m of revenue related to an Action Workforce contract which was exited at the end of FY18, as disclosed in our 22 May 2018 announcement. Excluding this prior period revenue, first half revenue for the group was up by $9.34m or 6.7%, with positive revenue growth across all divisions.
EBITDA for the half year to 30th December 2018 of $4.53m, was up $0.76m or 20.2% on the pcp (1H 2018: $3.77m), with the EBITDA rate up 84 basis points (bps) to 3.06%. This represents a continued improvement in profitability, with EBITDA up $0.30m or 7% on the previous six-month period (2H 2018: $4.24m).
All divisions exhibited profitability improvement on the pcp, with labour hire and training up by $0.24m and $0.34m respectively, with the latter representing a significant year on year lift of 294%, albeit off a low base. EBITDA % improvement of 84bps to 3.06% reflects the improved EBITDA result in an environment of reduced revenue, as well as the impact of increasing Concept share, improved training division performance and further reductions in our cost base.
Engaging over 4,500 workers each week, the labour hire division is made up of Action Workforce (blue-collar labour hire), Concept Engineering (technical labour hire) and Blackadder Recruitment (white-collar recruitment). Labour Hire revenue mix for 1H FY19 is Action Workforce (79%), Concept Engineering (17%) and Blackadder Recruitment 4%). The overall mix of its higher margin Concept business continues to grow, up significantly from an 13% share last year, due to both Concept revenue growth and also the exit of the low margin Action Workforce contract.
Labour Hire saw a revenue decline across the half, down 13.1% on the prior year, due to the absence of $30.63m from the exited contract. Excluding this contract, Labour Hire revenue was up 6.5% year on year with Action Workforce up by 5.2%, Concept Engineering up by 14.4% and Blackadder Recruitment experiencing modest growth.
Concept Engineering growth slowed in Q2 due to the impact of a decline in infrastructure project activity in the run up to the Victorian state election which continued into December. The group expects this to be a temporary contraction and anticipate that its Victorian Concept business should be back to previous volumes by mid Q3.
The exit of the low margin Action Workforce contract, along with an increased Concept mix as well as ongoing efficiency benefits have delivered an increased EBITDA margin of 4.05%, up 68bps (1H 2018: 3.37%).
The company’s training division continues to operate across three states, those being Victoria, Queensland and Western Australia. The Victorian business has been improving month after month and is delivering strong results. Western Australia also remains profitable. The Queensland operation continues to improve and with new branches opening recently in Ipswich and Logan, it believes this will enable it to leverage the opportunities in the job seeker agency market, which will be key to better performances in Queensland.
Net assets at $23.9m were down by $0.9m on the financial year ending 1st July 2018 position of $24.8m, reflecting the first half profitability less the reduction in retained earnings resulting from the payment of the final dividend of $3.6 million.
Ross Shrimpton, managing director, said, “Our first half result represents a pleasing lift in profitability as we successfully navigated the exit of a large revenue, but marginally profitable contract in our Action Workforce business. It was also pleasing to see our Training division exhibit clear signs of improvement off the low base of a year earlier.
“Concept Engineering and Blackadder combined to more than fill any drop in Action Workforce. Whilst Concept revenue softened in Q2, as infrastructure project activity pulled back due to the Victorian state election, we are comfortable that this was a temporary lull and remain optimistic for continued growth in our Concept business.
“Corporate costs continue to come down year on year, down another 9%, and while the opportunities here have been largely delivered upon over the preceding two years, we will continue to seek out and convert every saving opportunity we can.
“In terms of our training division, I am pleased to report that our Victorian business has come back well, moving into a solid profit position. Western Australia also remains profitable. Queensland continues to improve, with two new branches opened recently in Ipswich and Logan, which we believe will be key to better performances in this state as we leverage the opportunities in the job seeker agency market.
“Our balance sheet remains strong, with minimal usage of our debt facility required to ride the working capital cycle and our positive cash generation in what is our traditionally tougher half is a positive development.
“We remain on the lookout for acquisition opportunities and the lack of announcements in this regard is in no way any reflection of a lack of effort. We have evaluated a number, but as yet none have met our requirements. That said, we do see the sense in the appropriate, complementary acquisition for the Group and are continuing to explore opportunities.
“Whilst no dividend has been declared in relation to the first half results, this is primarily due to the Group’s preference to pay fully franked dividends. Given the utilisation of carried forward tax losses this is best delivered via a final dividend for the 2019 financial year which will likely have similar timing to the dividend we made last year in July-August 2018. Any final dividend for the 2019 financial year will be subject to board assessment in late FY19, taking into consideration the second half operational performance and the state of play on any acquisition opportunities under consideration.
“I would finally like to take the opportunity to recognise the commitment of and to thank our team at Ashley Services, both our more than 200 committed internal team members, as well as the more than 4,500 employees who work every day in our customer’s businesses, delivering a level of service we firmly believe to be the best operating in our sector. We remain proud of this performance and of the role it plays in our customer’s ongoing success.”
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