Publicly listed digital services consultancy RXP Services has revised its earnings forecast down for the 2020 financial year following a project deferral, lower sales conversion rates and lower than expected performance in its digital marketing services unit.
RXP CEO Ross Fielding last year expressed confidence in experiencing double digit earnings growth, but the company now expects underlying earnings before tax (EBITDA) to sit at $6.7 million for the first half of FY20.
In statement to shareholders, RXP explained that its Southern Region business was impacted by an unexpected deferral of a significant government project in the later stage of the first half of the 2020 financial year.
“Given staff were retained in anticipation of project commencement, a significant adverse impact on utilisation resulted ($0.55 million EBITDA impact),” RXP said.
Additionally, a key client also unexpectedly implemented a 10-day mandatory leave initiative in the first quarter. This is expected to create a further $600,000 impact on earnings before tax for the first half FY20.
On top of this, the company’s Southern Region also experienced lower sales conversion rates. To help combat this, RXP has hired Jared Hill as its group executive for the Southern Region.
Lower sales conversion rates had also impacted its digital marketing services unit, which is an area that the company had strategically invested in with customer experience, human centered design and general digital capabilities.
“While these investments position RXP for long term growth, the expected results have been slower to materialise than forecast,” the company told shareholders. This is expected to have a further $600,000 impact on earnings before tax.
“Despite the short term underperformance, RXP remains committed to enhancing its capabilities in this rapidly evolving and growing segment,” RXP said.
RXP closed the 2019 financial year with a $1.4 million loss, or a 117 per cent drop from the previous year when the company posted net profit after tax of $7.8 million.
The loss was attributed to the adoption of more "conservative impairment model assumptions" and a $10.8 million non-cash goodwill impairment.
At the time, RXP decided to put its Hong Kong business up for sale due to under-performance.