Managing director John Douglas today announced the preliminary outcomes of a strategic review conducted since he joined the company in March. Coffey’s operations will now be focused on its two largest businesses, Geosciences and International Development, and a scaled-down project management business. Plans for the remaining businesses will be finalised by September. “The outcomes of the strategic review confirm the Board and management’s confidence in the strength of Coffey’s key businesses and markets but they also reflect the reality that the company had lost focus on its core competencies and operating disciplines,” he said.
There will also be a new, flat, simplified management structure designed to drive earnings accountability and organisational stability.
Geosciences has 1,500 employees and accounts for 58% of earnings before interest, taxes, depreciation, and amortisation (EBITDA). It covers the complementary businesses of Coffey Geotechnical, Coffey Environmental, Coffey Information and Coffey Mining. The business has a substantial Australian presence as well as operating in major international markets.
The Coffey International Development business has 1,400 employees and accounts for 28% of EBITDA. It delivers revenues derived from long-term project contracts with donor governments and is described by the company as delivering a reliable and high quality earnings stream.
There are 200 employees in the Coffey Project Management business, which accounts for 10% of EBITDA. It provides consulting and advisory services on complex building projects. It is being substantially scaled down to focus on capturing opportunities expected to flow from the eventual cyclical improvement in the Australian domestic and New Zealand commercial property sectors.
Under review are several other operations including the rail, commercial advisory and the Los Angeles Environments businesses. Divestment of the Los Angeles-based Environments business is already under way.
The board expects an underlying EBITDA for the 2011 financial year of AU$29m-AU$32m (£18.9m-£20.9m). One-off restructure costs are expected to be AU$10m- AU$12m, including AU$7.8 million previously advised to the market. Non-cash goodwill impairment charges will be between AU$60m and AU$65 million, leading to an anticipated reported EBITDA loss of AU$38m-AU$48m for the 2011 financial year.
“The goodwill impairments and one-off restructure costs are certainly disappointing but they signal the return to a more disciplined focus on what we are good at, where the best opportunities lie and above all, quality of earnings,” said Douglas. “We are confident that Coffey can deliver a material improvement in underlying EBITDA of at least [AU]$45m in FY12. This outlook includes the full year benefit of the [AU]$18m of cost savings initiated this year; a simplified business structure with a flatter management structure focused on, and directly accountable for, earnings growth in our two major businesses, particularly geosciences.”
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