Spotless has recorded a first-half loss of $358 million for the six months to 31 December 2016, amid the catering and cleaning services group’s “strategy reset”.

In its half-year trading update, Spotless said revenue was impacted by prior year contract losses, exiting of lower margin contracts in B&I (particularly small single service contracts) and the completion of large construction contracts.

Spotless reported a net loss after tax (NLAT) of $358 million, including a largely non-cash impairment and restructuring charge of $391 million (post-tax) primarily from contract portfolio restructure.

Adjusted net profit after tax fell 31.4 per cent to $33 million. Sales fell 9.4 per cent to $1.46 billion on contract losses from the prior year. The company forecast a full-year net profit of between $80 million and $90 million.

The catering and cleaning services group reported that EBITDA was also impacted by increased investment in initiatives to drive long-term growth including business development, marketing and innovation.

Spotless chairman Garry Hounsell said the interim results reflected a transitional period for the company as the company continues to execute the 2016 strategy reset.

“As foreshadowed, the 1H17 result reflects the impact of prior period contract losses, margin pressure in some sectors and increased depreciation from investment in prior years. It also includes costs associated with investment in business development, marketing and innovation,” he said.

“However, we are confident in the strength of the underlying business and that the pipeline of new business opportunities supports re-stimulation of organic growth. As part of our strategy, we are undertaking the necessary steps to restructure the business and progress initiatives that provide a platform for growth.”

“The board has reset the dividend pay-out ratio to 40 per cent to 60 per cent of Adjusted NPAT (previously 65 per cent to 75 per cent), which brings Spotless in line with domestic and international peers, will allow greater capital management flexibility and is consistent with our near term priority of reducing gearing and strengthening our balance sheet.”

Directors have declared an interim dividend (unfranked) of 1.35 cents per share (1H16: 3.5 cents) which represents a pay-out ratio of 40 per cent.

Spotless CEO and MD Martin Sheppard announced the company was restructuring its contract portfolio and progressing delivery of its reset strategy.

“A key constraint on current performance is the number of small, underperforming contracts,” he said.

“As part of our strategy reset outlined last year, we are focused on driving value through long-dated, expandable, multi-service contracts which leverage our scale, geographical footprint and breadth of capabilities.”

“Restructuring our contract portfolio will unlock value and reduce operational complexity. Investment in our priority sectors and higher growth technology solutions will differentiate us in the market.”

“The fundamental strengths of our business have not changed. These include a blue chip customer base, a strong portfolio of long term government, health, defence and PPP contracts that provide diversification across sectors and service lines, and an appropriate cost structure. Our intent is to focus on these strengths, leverage them to drive growth without the distraction from underperforming contracts in highly contested markets which have low barriers to entry.

Revenue in the facility services business declined 9.2 per cent, reflecting previously identified contract losses, completion of lower margin construction business and weakness in the business and industry and resource markets.

During the half, Spotless was awarded a number of new and renewed contracts, valued at more than $71 million (new business) and $99 million (renewal business) in annual revenues.

These include: PPP contract for Australian National University; facilities management and integrated services contracts for Ballarat Convention Centre, Santos, Youi and Parliament House. Contract renewals also included Western Power Corporation, Clayton Church Homes, Vicinity Centres, Ergon Energy and City of Melbourne.