The losses continued to pile up for Vocation Ltd (ASX: VET) during the second half in what was a disastrous year for the embattled education provider.
What's happened?
To recap the circumstances quickly, Vocation was forced to surrender almost $20 million in key government funding for two of its Registered Training Organisations (BAWM and Aspin) in Victoria late last year. This resulted in the resignation of then-CEO Mark Hutchinson (who was replaced by Mr Stewart Cummins) and the collapse of the company's share price.
As a result of $241 million worth of impairments, the company reported a first-half loss of $272.6 million. That ballooned out to $300.3 million for the full-year, while the underlying after-tax loss, which excludes one-off items and impacts from discontinued businesses, was $24 million despite an 18.6% rise in revenue from continued businesses. This compared to an underlying profit of $6.4 million in 2014.
Despite this poor result management is confident of a turnaround over the next two or three years. Meanwhile, the company also named Frank Lintvelt as its new chief financial officer as it continues to rebuild its management team, which could partially explain today's 3.1% jump in the group's share price.
What happens now?
From December 2014 to June 2015, Vocation reduced its debt from $120 million to just $11 million in order to secure the continued support from its banking syndicate, made up of Westpac Banking Corp (ASX: WBC), Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd. (ASX: NAB).
This was made possible by the sale of a number of Vocation's non-core business units, which has allowed management to focus only on those it believes are important to the company's future success. Mr Cummins said:
"Vocation is now more focused, our operations are more disciplined and we have tighter and more effective financial controls and compliance procedures. Our business portfolio has been streamlined and we have a clearly defined, five-point turnaround plan to guide recovery over the next 2-3 years. Future profitability and cash flows will benefit from an intense focus on executing the turnaround plan."
Although Vocation might seem like a tempting buy at 10 cents per share, investors still need to consider the risks and headwinds facing the business. Indeed, the group is still facing three class actions, while there is no certainty that its turnaround will be successful.
With the market hovering significantly below its recent high levels, investors would be wise to consider other, potentially more rewarding alternatives before buying a stake in Vocation.
