On the 23rd of September, ARQ Group Limited (ASX: ARQ) announced a change to its full year guidance, following below expected results for its enterprise division due to deteriorating trade conditions. As a result, ARQ have outsourced to Macquarie Capital to undertake a strategic review of the business to ensure ongoing value for its shareholders.
Softening market conditions for ARQ’s Enterprise division has shown that the originally forecasted revenue growth for H2 2019 will not be achieved. ARQ has gone through cost reductions in an effort to close the gap on the predicted results, however, the reductions will be insufficient to hit the forecasted mark for H2 2019. Thus, the underlying group EBITDA is expected to range from A$16.8 million to A$19.3 million. This is in contrast to the original forecast of A$27 million to A$ 30.5 million.
ARQ are making efforts to reduce costs in their Enterprise division, as already A$1.2 million in overhead costs have been cut since June. A further A$1.1 million in costs is set to be cut by the end of 2019. These cuts aim to bring the Underlying EBITDA for 2020 to a more positive outcome. Although costs have been cut, EBITDA for the Enterprise division will still be well bellow forecasted, tracking for A$1 million to A$ 2.5 million, much lower than the forecast of A$12 million to A$ 14.5 million. Slightly offsetting the negative results is ARQ’s small to midsize business division which performed in line with forecasts, due to positive sales of digital marketing services.
As a result of negative results, ARQ is going through a strategic review, executed by Macquarie Capital. This is after multiple companies had applied to assist ARQ with a company-wide strategic review. However, Macquarie Capital was chosen due to ARQ’s belief that they could help create higher value for shareholders. It is possible that the strategic review could result in selling divisions of the company.
As a result of the expected cuts from the strategic review, ARQ will be downsized, leaving a smaller business and a smaller team. As a result, the current CEO, Martin Mercer, is stepping down immediately. Tristan Sternson has been named Interim CEO, as a transitional period looms for finding a new permanent CEO.
At 1:42pm AEST 24/09/19, Arq’s shares were down 36 cents, a 33.3% decrease. This is the lowest they have hit since 2004, falling 82% over 2019.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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