29/01/2009 - 12:00

ISS slumps on profit warning, job cuts

29/01/2009 - 12:00

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Shares in industrial software provider ISS Group have slumped 32 per cent as the downturn forces the company to withdraw its profit guidance, cut jobs and a proposal to scrap the interim dividend.

Shares in industrial software provider ISS Group have slumped 32 per cent as the downturn forces the company to withdraw its profit guidance, cut jobs and a proposal to scrap the interim dividend.

In a statement today, the company said it has started to feel some effects from the global slowdown with several high profile customers in Australia and internationally starting to defer projects or terminate existing deals.

It said that slower activity from its United Kingdom and United States divisions has given "the board cause for concern that the second half of 2009 will not be as robust as the guidance provided last year".

As a result the company said it was "prudent" to withdraw its previous guidance for 2009 and beyond.

In the 2008 financial year, ISS delivered a 301 per cent jump in its net profit to $3.7 million.

Meantime, the company said it will reduce the size of its workforce in order to control costs in the current business slowdown. ISS did not provide details and comment was being sought at time of publishing.

The company added that although it is currently trading profitably, uncertainty in the markets has prompted the company to propose not paying an interim dividend.

A final dividend payment for 2009 is also under a cloud, said ISS, with a decision to be based on current trading conditions.

"While we understand that this will be an unpopular decision for a number of shareholders who rely on dividend income, the overall strength of the company is paramount to generating long term gains," ISS said.

The company currently has some $10 million cash at hand.

Shares in the company dropped seven cents to an intraday low of 18c before settling at 20c at 13:48 AEDT.

 

 

The announcement is below:

 

 


The Board of ISS Group Limited (ASX: ISS) wishes to provide the following update on trading activities to shareholders and the wider investment community.

ISS Group will release its half year results to the market towards the end of February 2009. In the meantime the Company believes it is prudent to make some observations concerning the current and future trading conditions.

Half Year Results

Operating results for the six months to 31 December 2008 have remained positive and broadly in line with previous guidance issued for 2009. Cash flow and the balance sheet have remained strong with approximately A$10 million net in cash and receivables at half year.

The final profit figure for the half year is still subject to audit review, including the amount of share based payments expensed for the half. Accordingly, the Company believes it is prudent to wait for audit clearance prior to making a final statement as to the profit performance.

Operating Activity

During the past two months, the Company has begun to feel some effects from the global slowdown with several high profile customers, both in Australia and internationally beginning to defer projects or in some cases terminate existing works programs. Without being able to determine the length and breadth of any slowdown in the oil and gas and minerals sectors, it is difficult for the Company to assess the likely impact (short or medium term) of its customers' actions in relation to both existing contracts and future orders. This makes forecasting extremely difficult and is not unique to ISS Group or the IT industry.

Outlook

While the Company is in a strong position to trade through any potential short to medium term slow‐down in activity, it is taking prudent steps to manage its business and resources. The deferment or cancellation of several orders recently, together with reports of slower activity from our US and UK operating branches have given the Board cause for concern that the second half of 2009 will not be as robust as the guidance provided last year.

Rather than attempting to re‐cast the guidance, the Company believes it is prudent to withdraw its previous guidance for 2009 and beyond. In the current environment, the Board believes it is more prudent to provide trading updates to shareholders as trading trends emerge that point to more certain conditions and outcomes.

As a result of slowing conditions, the Company is focussing strongly on cost control across all geographic divisions. With labour being the largest controllable cost in the organisation, it is regrettable but necessary for the Company to reduce and optimise the size of its workforce to anticipate any business slowdown.

The Company continues to foster its working relationship with Schlumberger in relation to the global license agreement for the sale of BabelFish. Sales activity to Schlumberger clients has been modest in the first half, with sales presentations only commencing in earnest around October. It is not clear or evident how the global slowdown will impact on the Schlumberger sales efforts other than to suggest that, based on our own customers' cautious approach to 2009/2010, it would be reasonable to assume that the same conservatism applies at the larger Schlumberger customer level. Fortunately for ISS Group, the license agreement provides for fixed minimum royalty payments over a five year period.

Dividends

While the Company is currently trading profitably and the balance sheet remains strong, the Board believes that the current uncertainty with regard to future trading makes it difficult to assess the reasonableness of paying current dividends. Accordingly, the Board has assessed that it should maintain the Company in a strong cash position and advises that, notwithstanding the half year profit, the Company expects to announce it will not be proposing to pay an interim dividend in 2009. In addition, the position on payment of any final dividend for 2009 will be made in light of trading conditions at the time. While we understand that this will be an unpopular decision for a number of shareholders who rely on dividend income, the overall strength of the Company is paramount to generating long term gains.

Summary

- Our Company remains healthy and cash flow positive.

- There are now evident signs of a slowdown emerging with several high profile customers deferring or cancelling projects.

- 2009/2010 profit guidance has been withdrawn due to our inability to accurately forecast the depth and breadth of any slowdown on our customers and hence our business.

- Schlumberger license arrangement remains intact.

- No 2009 interim dividend to be declared and future dividend decisions will be made in light of trading conditions at the time.

We will update Shareholders with the December 31 half year results and any changes to trading conditions as soon as our audit reviewed results are available and otherwise as new or changed conditions become evident.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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