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Arq Group starts to see a financial uptick after challenging 12 months

Arq Group starts to see a financial uptick after challenging 12 months

Underlying net profit tumbled 89 per cent to $800,000 and underlying EBITDA sat at $9.6 million

Arq Group's Martin Mercer

Arq Group's Martin Mercer

Credit: Arq Group

Publicly-listed Arq Group has admitted the past 12 months have been a challenging time for the company as it experienced a revenue decrease of 19 per cent to $90.9 million and reported earnings before tax (EBITDA) fell 135 per cent down to $7.8 million, for the first half of FY19, ending 30 June.

Underlying net profit (NPAT) also tumbled 89 per cent to $800,000 and underlying EBITDA sat at $9.6 million. 

Arq Group CEO Martin Mercer said after a challenging 12 months, he was pleased to be turning a corner after seeing its SMB unit bouncing back and the performance of the enterprise division was beginning to make some progress. But the bounce back in SMB only partially offset the Enterprise shortfall. 

The Enterprise division did face some challenges due to delays in turning on revenue and a shortfall in new business, but said that the pipeline for the second half of FY19 was building steadily.

The comparison to the prior corresponding period was also distorted by the inclusion of an exceptional contract in the first half of FY18, the company revealed to shareholders.

“The recovery plan is having an impact and momentum is building,” the company said. 

The Enterprise division saw a revenue decrease of 28 per cent to $44.2 million while underlying EBITDA fell 101 per cent to negative $200,000.

The SMB division saw a bounce back in business after experiencing a challenging second half in FY18, and is expected to continue to grow in July and August. The division recorded a nine per cent decrease to $46.7 million in revenue while underlying EBITDA up 12 per cent to $10.4 million.

“Pleasingly the core result for SMB was very strong with core underlying EBITDA up 55 per cent on the same period last year,” Mercer said. 

In June, the company revealed a new organisational structure that saw a flattening and broadening of its leadership team with two senior executives departing the business.

The company is currently tracking 12 months into its 18 month business transformation program, which kicked off as it rebranded the business from Melbourne IT to Arq Group in May last year. This saw the consolidation of 10 brands down to two -- Arq Group that focuses on digital services in the mid-market sector, and Netregistry, a provider of online solutions for small businesses.

At the time, Mercer expressed disappointment and frustration in the forecast results, but was confident the changes it was making within its enterprise sector, will help turn that around, considering how the SMB sector has begun to see growth.

“This is a temporary challenge, and a recovery plan is already in effect. Last year, our SMB division fell short on earnings, but is now exceeding expectations as a result of cost improvements from productivity initiatives and growth in new solutions revenue,” Mercer said. “We’re confident enterprise will see a similar return to growth. 

“The organisational changes implemented today will support future growth. Our recovery plan for Enterprise is also well advanced and, we’re seeing improvements in Melbourne. We also expect the revenue from delayed contracts to come on stream in the Q3. Together with the ongoing recovery in SMB, the group is expecting a stronger H2 FY19 performance. Arq has a lot to look forward to.” 

Some of the new strategy for the enterprise team includes a new sales leader in Melbourne along with efforts of rebuilding the sales team, since forecasting a 15 per cent year-on-year decline in the enterprise business. Despite this, the Sydney market is growing strongly at a forecast rate of 40 per cent year-on-year growth. Arq also has offices in Brisbane and Auckland.

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