Empired tumbles on earnings warning

Empired shares lost over a third of their value after the IT services provider announced it had been hit with unexpected costs and was facing lower earnings.

The Perth-based company said a number of items affecting first-half trading results had been more severe than first anticipated.

“However, (they) can be considered ‘one off’ or ‘transitional’ in nature,” Empired said in a statement.

The company lowered its full-year revenue guidance to between $159 million and $169 million, down from between $155 million and $175 million.

First-half revenue is expected to be about $79 million, with reported earnings before interest, tax, depreciation and amortisation in the range of 1-2 per cent of revenue.

“Empired expects second-half revenue in the range of $80 million to $90 million, with EBITDA margins of 8-10 per cent of revenue,” it said.

Empired shares were 35.5 per cent lower to 38 cents each at the close of trade; a low not seen since December 2012.

During the first half of the financial year, the company restructured its sales organisation to promote sales across its service portfolio, which resulted in delays and a lag to project-based work on the east coast, costing the company $4.1 million.

It also experienced delays in commencement dates for contracts it had won last year, resulting in a further $1.1 million to earnings.

“These contracts are now all operating in line with contracted margins,” Empired said.

Empired has also closed two-thirds of its offices across the country, from nine down to three, with the company recording a $2.3 million non-cash write-down to plant and equipment.

The company has also been working to reduce corporate, sales and administration overhead expenses of $5 million per annum, $2 million of which was completed in the first half.

Managing director Russell Baskerville said he was disappointed by the number of items affecting profitability in the first half but was confident that the items were either one-off or transitionary in nature.

“The initiatives undertaken during the first half of FY16 have been critical in positioning the organisation for long-term sustainability and improved margin performance which we consider prudent in uncertain economic times,” Mr Baskerville said.

“We are confident in the investments and strategic initiatives undertaken and look forward to delivering improved financial performance and value creation for our shareholders.”

The company will release its first-half results at the end of next month.