In January this year Skilled Group (ASX: SKE) knocked back a takeover offer from Programmed Maintenance Services Limited (ASX: PRG), saying the merger would not have altered the group's potential or market position.
In June this year, Skilled then accepted a sweetened takeover offer from the same company for $652 million.
To add to uncertainty surrounding the deal, the company also replaced its CEO in January 2015. Skilled's share price has subsequently fallen by 38% in the past 12 months.
To provide some background, Skilled Group is a provider of labour and workforce services to the public and private sectors. Services it provides include the provision of trade and professional labour, maintenance services, project management, healthcare professionals, and offshore marine staffing services.
It's Australia's largest provider of workforce solutions, with a branch network of more than 100 local and regional offices across Australia, New Zealand, the United Kingdom, Malta and the United Arab Emirates.
Last week, Skilled released its full year 2015 results, highlights included:
- Underlying net profit after tax of $54.2 million*, down 2% for the year ended 30 June 2015
- The reported net loss after tax was $16.7 million*, down from $44.2 million in 2014
- Revenue was up 9.3% to $2,047.4 million
- EBITDA margin was stable at 5.0% (FY14: 5.1%)
- The Board has declared a final dividend of 9.5 cps, fully franked.
(*) The company has recorded a $60 million non-cash fair value impairment charge required in relation to the proposed Scheme of Arrangement with Programmed.
Commenting on the result, Skilled's new Chief Executive Officer, Mr Angus McKay said, "This is a strong operating result for the Group, reflecting an improved second half performance. Our revenue and EBITDA are well above FY14 levels, predominantly as a result of acquisitions and work flowing from the Saipem and Gorgon projects in particular.
Also, as expected, we have delivered $15 million of cost savings in FY15. Significant cashflow generation has seen our net debt fall substantially, and as at 30 June Skilled had a net debt/EBITDA ratio of 1.4 times."
Outlook
In Marine Services, activity on the construction phases of the Saipem and Gorgon projects is expected to conclude during FY16. Both the Engineering and Marine Services businesses have positioned themselves for the work that will arise as the resources industry continues to shift from construction to production phase.
In Workforce Services, there was an improved revenue trend in the fourth quarter of FY15.
The process to shift administrative functions away from branches to centralised offices is expected to continue. In Technical Professionals there was improved performance in the white collar and training services businesses during FY15.
The performance of SWAN Contract Personnel (one of Skilled's main brands) is likely to remain at low levels as a result of the challenges continuing to face the resources sector.
Update on the proposed acquisition by Programmed Maintenance Service Limited
On 24 June 2015, Skilled and Programmed entered into the Scheme Implementation Agreement, which provided for Scheme consideration of:
0.55 new Programmed shares and,
$0.25 cash, less the amount of any Skilled FY15 final dividend and Skilled special dividend, per Skilled Share.
An Explanatory Memorandum in relation to the proposed Scheme is expected to be distributed to Skilled shareholders in late August 2015 and a Scheme meeting for Skilled shareholders is expected to be held on 25 September 2015.
Verdict
The company's balance sheet looks solid with debt to equity around 34%, and its revenues are continuing to grow.
There's a lot to like about the management at Skilled. Previous CEO Mick McMahon, did a great job of turning Skilled around after the business was in significant strife during the global financial crisis.
New Managing Director and Chief Executive Officer Angus McKay only joined the company in January 2015, and has been instrumental in helping to further stabilise the company's financial position and embark on a growth strategy.
The company has implemented a new strategy that has included building scale in attractive, higher-skill, higher-margin segments, and leveraging scale and brand strength in workforce services with a focus on customer service, cost efficiency and safety. Steady progress is being made with implementation.
For me, margins are just too low, averaging low-to-mid-single digits, and its earnings are highly leveraged to the economic cycle. This combined with uncertainty surrounding the Skilled/Programmed deal means I'll be sitting on the sidelines and waiting for things to settle down between the two companies.
