DAMON KITNEY From: The Australian July 06, 2011 12:00AM
SKILLED Group chief executive Mick McMahon is looking forward to moving on to the next stage of his restructuring plan for the labour hire and recruitment firm after bedding down new funding arrangements with its bankers.
Skilled Group has refinanced its syndicate debt facility and now has a $160 million facility with two tranches comprising $60m maturing in two years and $100m maturing in three years.
The big four major Australian banks are all part of the syndicate of lenders.
"Our effective interest rate was very high at 11.5 per cent, so that will be significantly reduced. So we have a normal public company funding arrangement in place as opposed to one that reflects a business that is in a bit of strife and paying therefore a higher risk premium," Mr McMahon said.
Mr McMahon, the former chief operating officer of supermarket chain Coles, joined Skilled in October last year. He replaced chief executive and 31 per cent shareholder Greg Hargrave, whose father Frank founded the company in 1964.
Mr Hargrave announced his intention to step down in April last year after Skilled announced its second profit warning in six months.
Alex Waislitz's Thorney Investments is also a significant shareholder in Skilled.
"When I came in our debt was $220m and we will be down closer to $120m," Mr McMahon said.
"The net result of lower debt and then a lower effective interest rate will pretty much halve our net interest cost next year. This puts us in a position where we have good funding arrangements in place."
Macquarie Equities said yesterday it was now forecasting 16 per cent earnings per share growth for 2011 and 60 per cent in 2012, driven by a rebound in revenue growth for its workforce services division.
Skilled is heavily exposed to critical labour shortages in the mining and oil and gas sectors, especially in Western Australia.
Macquarie also expects margin improvement to flow from corporate cost reductions and lower interest expenses.
Broker Goldman Sachs said: "The company is well placed to benefit from a strong labour market with high resources exposure (46 per cent of revenue) as well as profit turnaround initiatives (strong focus on improving profit margin, cashflow and return on capital)."
Earlier this year, the group raised $70m in fresh equity.
"It is a business where you want the right balance sheet - low debt for the bottom of the cycle as opposed to what you are able to afford at the top of the cycle," Mr McMahon said.
"This is a business where we are exposed to the point of growth and the wider economy. You do well when it is growing, but less so when the opposite is true.
"I saw the first six months as normalising this business and we are pretty much through that."
Skilled yesterday closed steady at $2.18
SKE Price at posting:
$2.18 Sentiment: Buy Disclosure: Held
