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| Jenny Ruth's Column | | For archival copies of Jenny Ruth's Column click here... | | | | 29th October 2006 | Labour hire company Allied Work Force’s profit warning in mid-August took the froth out of its share price, although it has recovered somewhat since.
The company has struggled for market credibility since it listed in mid-2005 with the shares spending more time trading below the $1.50 issue price than above, but they were at $1.65 late last week.
The major factor that lifted the share price to its record $1.85 in July was the fact that the company slightly bettered its prospectus forecast at the operating level for the year ended March, although higher than expected tax and interest charges meant it marginally missed its net profit target.
In the August warning, the company said its results for the six months ended September, due to be reported in a few weeks, will be "seriously affected" by a blow-out in costs, particularly unprecedented increases in vehicle costs and the impact of bad weather.
Nevertheless, the company was still confident of achieving a full-year result in line with previous indications. The annual report had promised similar revenue growth from existing operations to the 22 per cent achieved last year "with these flowing to the bottom line porportionally, with any acquisitions adding further." Growth at the net profit level last year was 61 per cent to $3 million.
Founder and managing director Simon Hull says the company is constantly wrestling with the challenges of taking advantages of growth opportunities while also achieving profit growth.
"This industry is relatively immature in New Zealand and still developing quite fast." While the "top line" sales growth is continuing, "that challenges the bottom line," he says.
But even if focusing on growth does compromise short-term results, that’s the right way to go because "those returns will come over time."
In particular in the latest first-half, the Spring Creek holiday park in Blenheim, which the company bought in May for $1.8 million to provide accommodation for seasonal agricultural workers, wasn’t able to be used over the winter as the company had hoped because of delays in getting resource consents.
That "cost us a bob or two" and meant its Contract Labour Services division, the agricultural labour hire business which Allied bought 64 per cent of in September last year, made a negative contribution to Allied’s first-half results. However, that impact will be a one-off: "Everything’s tickety-boo now," Hull says.
Although the government wants to make it easier for Pacific Islanders to come to New Zealand as seasonal workers, Allied is more focused on wanting Asian migrants, "Asians in general, Malaysians, Thai, Vietnamese, Philippinos, Indians" and has applications in to bring in such workers. "Their output exceeds most Kiwis," Hull says.
Being listed should add to Allied’s credibility. "They’re (immigration officials) looking for employers who are responsible and who will look after these workers. At the end of the day, we don’t want all those workers disappearing into the hedges."
Being listed has also helped lift the company’s profile in its industry, aiding in it increasing its customer base by about 2,000 firms to about 10,000 in the past year.
"Undoubtedly, it has increased the profile. I guess it has opened up other doors to us. Clients and potential clients like the scope and size of us.
Hull has often said that his company benefits whatever the economic conditions: in boom times when firms can’t get staff, Allied’s workers can plug gaps, while in a down-turn when firms are uncertain about the future they can use casual labour from Allied without the commitment of hiring full-timers.
He says the economy has quietened down a little more than he had expected this year. "Some areas are a little more static than we had expected. The rhetoric we’re getting out of a number of our clients is that they’re looking at quite a late rush for Christmas. People are just starting to ramp up now, which is later than normal." Allied earns the bulk of the year’s profit in its second half.
The company is still focused on making further acquisitions but it’s a time-consuming process, particularly in getting vendors to accept a reasonable price, Hull says. "Sometimes people think what they’ve got is worth moonbeams."
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