openbriefing.com
SKILLED Group Limited (ASX: SKE) today announced that it had decided not to pursue the sale of Swan Contract Personnel (“Swan”) as the final bids for the business did not reflect its full value. The move to sell Swan came out of a business review in August which concluded that SKILLED’s debt level was high given the Group’s financial profile. In the absence of sale proceeds from Swan, how will you now lower debt to the target level of 2x EBITDA, versus 3x in FY2010? Does debt reduction remain a priority?

CEO Mick McMahon
Yes, debt reduction over time remains a focus for the company. However, there are some signs of improvement in business conditions and activity levels over the last four months. This, combined with other initiatives being considered as part of an overall review, will enable us to work with our lenders to achieve a sustainable debt level over time.

There are two factors that impact an EBITDA debt multiple- one being EBITDA performance and the other being the level of debt. While the level of debt fluctuates with activity levels and earn out commitments, as our performance and cash flow improves over time we will become more comfortable with the level of debt.

openbriefing.com
In light of SKILLED’s previous readiness to sell the business, what is Swan’s strategic fit within your portfolio?

CEO Mick McMahon
The decision to sell Swan was made at a time when business conditions were uncertain. It was the Board’s view, at the time, that it would be in the best interest of shareholders to reduce debt through the sale.

Whilst it’s true that every asset should be for sale if it maximises shareholder value, the final offers, whilst credible, did not reflect the full value of Swan and its future potential contribution. Swan has a good track record, a long history and a strong brand name. It provides technical professionals for the resource sector and it has a good strategic fit for SKILLED. Since its acquisition in 2007, the business has performed well and has been a valuable contributor to SKILLED Group, so the value of the business was never in question.

openbriefing.com
SKILLED did not pay a dividend for 2010, indicating it was focused on conserving cash, reducing debt and bringing profitability to an acceptable level. Without a significant reduction in debt, can dividends be re-instated in the shorter term?

CEO Mick McMahon
My main focus in this regard will be on improving the basic fundamentals of the business, that being improving cash flow, realised margins and return on capital. Over time this approach, along with improvements in business conditions, will strengthen the group’s profitability and balance sheet and in turn improve value and return for shareholders.

The dividend policy remains unchanged and the Board will always seek to maximise shareholder value.

openbriefing.com
You’ve indicated that activity levels and performance for the first four months of the current year ending June 2011 had improved compared with the comparable period last year. To what extent does this reflect external conditions? Which specific segments are driving the improvement?

CEO Mick McMahon
Activity levels across most of our businesses have improved compared to the same time last year and this is mainly as a result of improvements in external conditions. The resources, civil and infrastructure sectors remain the strongest with recovery in other sectors being varied.

openbriefing.com
As the new CEO of SKILLED, you’ve commenced a review of all aspects of the business. How will your review differ from the one conducted earlier in the year and what are your hoping to achieve out of the review?

CEO Mick McMahon
As the new CEO of SKILLED Group, I will be commencing a review of all aspects of the business. It will focus on the operational performance and business fundamentals - margins, cash flow and return on capital. This will then form the platform for the strategic outlook over the next 3 – 5 years. The review will be managed in-house utilising resources from within the business and functional experts in specific areas on an as needs basis.

openbriefing.com
You commenced as CEO on 8 November. What attracted you to the role at SKILLED, given a large part of your experience is in the retail sector, and what are you first impressions of the business?

CEO Mick McMahon
In 25 years I have worked across many businesses, markets and organisations including B2B, retail, manufacturing, supply chain and private equity investment. All of these roles contribute to my experience in performance turnarounds and operational improvement. In my view, SKILLED has potential for a turnaround in performance over time. It has latent strength in the brand and, in general, the right building blocks in place across much of the business. However it will benefit from greater financial discipline and a focus on the operational basics of the business.

In my first two weeks, I have visited many of our branches, met with front line staff at our offices and held several staff engagement sessions as I wanted to hear from our team members directly.

My first impression is that there are good people in the business, many of the right building blocks and exposure to the right sectors. Greater financial discipline and a focus on business fundamentals should deliver a sustained improvement in performance over time.

openbriefing.com
Thank you Mick.