Broadspectrum/Transfield share buyback backed by university,TAFE and NSW LAHC contracts that may also be plagued by workforce issues.

by Ganesh Sahathevan 


Broadspecturm announced a share buyback in early February, ostensibly justified by what it described as  strong cashflows:

Broadspectrum says it opted for a buyback of up to $51 million worth of shares rather than an interim dividend at the request of its shareholders. It points to the company's strong cashflow generation as the factor driving a capital buyback.

However, as Michael Smith of the AFR noted:

It has been a long time between drinks for Broadspectrum shareholders. The detention centre contractor, formerly known as Transfield, has been focused on de-gearing and generating cash since chief executive Graeme Hunt was brought in three years ago to clean up the mess.

So, the company's decision on Monday to buy back up to 10 per cent of the company's stock is a significant turning point in the previous policy of using surplus cash to pay down debt. The last share buyback was in October 2011, but two years later the company was focused on refinancing its debt pile.

Given the likely loss of the detention center contracts and the downturn in the oil and gas sector (so bad that recovery is likely to see the  service providers such as Transfield cutting fees to remain competitive) ,Transfield is likely to be more reliant on what it describes as"non-discretionary, essential services for blue-chip clients." Like the detention centers, these clients are often government.

In June last year Transfield (now known as Broadspecturm) announced :


Transfield Services has signed a five year $88 million integrated facilities management and property services contract with the University of Newcastle, delivering on its strategy to enter new growth markets.
This agreement follows recent contract extensions in the housing and health sectors including those with the NSW Land and Housing Corporation (LAHC)  worth $45 million over the next five months and the Gold Coast University Hospital worth $12 million over nine months. 

Transfield say the  NSW LAHC contracts in total  could be worth up to $1.6 billion:

Broadspectrum has signed a new five year integrated facilities management and property services contract with the NSW Land and Housing Corporation. The contract could be worth up to $950 million and will nearly double the annual revenue Broadspectrum received under its previous contract. The agreement also includes an option for NSW Land and Housing Corporation to extend the term for a further two plus two years, which could see the contract worth up to $1.6 billion.
Broadspectrum’s Managing Director and CEO, Graeme Hunt, said the new contract confirmed the underlying strength of Broadspectrum’s business, and reinforced the success of the Company’s strategy in targeting non-discretionary, essential services for blue-chip clients. “This agreement extends a 13 year relationship with the NSW Land and Housing Corporation, and significantly strengthens our work in hand,” Mr Hunt said. 

However,  cashflow generation  from these contracts is highly dependent on labor.These are labor intensive businesses, and  Transfield has demonstrated a propensity to expose itself to risky labor contract arrangements. As Seven 11 Australia has recently discovered, that risk is large enough to potentially  destroy a company.  
Transfield appears overly confident in financing  a share buyback on the basis of these cashflows , on the assumption that they are stable and long-term. That over-confidence does not appear to be in the best interest of shareholders.
END 

Saturday, February 27, 2016

Federal and NSW Liberal Governments creating a contract work force for Transfield out of long term unemployed: Centrelink recipients forced to work for Transfield like contractors 

by Ganesh Sahathevan

The Turnbull Government, working via the Department Of Human Services , is forcing Centrelink benefit recipients  into quasi-contract   work as  school cleaners for  Transfield Ltd (now known as Broadspectrum).The terms and conditions of work are in effect those of contract cleaners, with workers expected to use their own vehicles to get to multiple sites and over split shifts.

Transfield has been awarded the contract to clean and maintain schools in New South Wales 
Transfield boasts that it has  "successfully placed 70% candidates in cleaning positions on the Transfield Services School contract. All (sic) of whom are job seekers with disabilities, homelessness, long term unemployment and other employment barrier".

However,what is not said in its promotional material, but which it states clearly at its cleaner interview and information sessions is this:
You will commence  your employment on a casual basis and maybe 
asked to do multiple sites and shifts in the first instance. 
Performing employees will be presented with opportunities to go 
permanent either on a part-time  or full-time basis. 

Candidates are told that ownership of a vehicle is "desirable" and nothing is said about
reimbursement of costs for the use of one's own vehicle. 

Transfield works with a number of Job Active service providers ,who are in turn delegates for the
Secretary ,Department Of Social Services.  Job Active network clients who refuse to consider the  Transfield "offer" are threatened with a suspension of benefit payments. By Transffield's own admission, its workers in these school cleaning roles are job seekers with " disabilities, homelessness, long term unemployment and other employment barrier".
Under changes introduced by the Abbott Government Job Active service providers are paid a fee for placing workers in even part-time work, so they too have every incentive to collaborate in this scheme. 
END