Cambian slumps as it warns on 2015 earnings

Cambian Group shares were under pressure on Tuesday after the company said its earnings for 2015 would be lower than previously expected.

The company, which provides health, education and care services, said adjusted earnings before interest, taxes, depreciation and amortisation will be around £46m, compared with its guidance in October for no less than £49m.

Meanwhile, revenue for the year is expected to be around £292m and the company said it will not be recommending the payment of a final dividend.

Cambian said that since the previous announcement, revenues and wages have been broadly in line with expectations, but due to weaknesses in its cost management processes, it took longer to identify and manage down other costs.

The AIM-listed company said it has taken a number of immediate steps to improve its performance and bring costs and capex in line with group revenue.

Having deployed around £46m in capital expenditure in 2015 adding an additional new 368 places, its focus this year will be on increasing occupancy in the existing estate.

To facilitate this, it has restructured its central HR function and created a regional service centre reporting to the operational divisions to enable greater coordination between staff deployment and the recruitment pipeline.

In addition, the company said considerable steps have been taken in strengthening its controls to ensure costs are appropriately managed, taking into account the rate of growth in revenue. It has appointed PwC to conduct a review of its supplier management systems.

Cambian said it will reduce capex to around £20m in 2016, which it reckons is the minimum necessary to build out its existing facilities and maintain the quality of its premises.

Chairman Christopher Kemball said: “It is very disappointing to announce a further revision of expectations for the year to 31 December 2015. However, we now have taken the significant remedial actions outlined above and we are already seeing the benefits.

"We believe that Cambian is fundamentally a good business with an exciting future. To realise its potential, though, we must first refocus the core business before returning to our growth agenda."

At 1235 GMT, Cambian shares were down 40% to 71.85p.