Inabox Group (ASX:IAB) is getting set to slash its 300-strong employee headcount by around 10 per cent in a bid to ease company costs after its finances were hit by poor performance within its Hostworks business, which it acquired earlier this year.
The publicly-listed managed IT and cloud communications company told shareholders on 4 December that it had finalised the cost reduction program it first flagged in early November, when it revised its earnings forecast, revealing that Hostworks would have a negative impact on the group’s financial performance.
It is anticipated the cost reduction program will result in cost savings of $2 million or more. It is expected to cost approximately $700,000 to implement the cost reduction plan.
Under the plan, the company’s total staff numbers will be reduced by roughly a tenth – or around 30 people -- to “better align its personnel costs” to the revised forecast revenue expected in the second half of the 2018 financial year.
"A total of 26 roles will no longer exist in the organisation. Approximately half of these will not exist by the end December 2017 with the remainder predominantly related to the consolidation of our operations centres to be completed by the end of Q1 calendar 2018," a spokesperson for the company told ARN.
In its 2017 financial report, the company told shareholders that, following its acquisition and integration of Hostworks and Logic Communications, which it also announced earlier this year, its national presence comprised of 300 employees across 13 offices.
Other measures flagged in Inabox Group’s cost reduction plan include the merger of two of the company’s operations centres, in a bid to reduce duplication.
At the same time, the company’s monitoring and maintenance function will be centralised and taken offshore, while the management of its engineering field force will be centralised around the country.
While the company said that some of the affected staff will remain in their roles until February 2018, the changes are expected to be largely complete by the end of December this year.
“The board and senior management team have spent considerable time over the last few weeks reviewing every part of the business as we are confident that these changes will materially improve profitability and our operating cash flow in H2 FY18 and beyond,” Inabox Group CEO, Damian Kay, said.
“Our pipeline of opportunities remains strong and we continue to win new business from new and existing customers across our indirect, direct and enablement divisions.
“We regret the impact of the changes to the staff who are affected and will be ensuring that they are offered support throughout this period,” he said.
Inabox announced in February it would acquire Hostworks Group from BAI Communications in a deal worth $7 million, largely to help it build out its cloud offering.
The deal also saw Inabox leverage Hostworks' cloud infrastructure along with its existing relationships with key vendors, spanning AWS, Microsoft Azure, IBM Softlayer and Google Cloud Platform.
“The acquisition of Hostworks fits firmly with Inabox’s vision to be a leading managed communications, cloud and IT services provider for SMEs and corporates as the demand for cloud-based services continues to grow,” Kay said at the time.
In November, however, Inabox said that the Hostworks business would perform well below expectations during the 2018 financial year.
After acquiring Hostworks, Inabox estimated that the new business would contribute in excess of $21.8 million in revenue and $1.2 million in net profit after tax for FY18.
The company said at the time that even though “good progress has been made integrating hostworks operation and staff” a further review showed that Hostworks would not contribute material earnings in the current financial year.
According to Inabox, this is mainly due to three enterprise clients giving notice to move their services away and a small number of enterprise clients rationalising their services.
Article updated at 14:00 on 4 November to include additional comment by Inabox Group.