Rebrand fails to save struggling Webcentral as it awaits sale

Struggling web services provider Webcentral has reported another loss for the half to June 2020 as it awaits the outcome of a crucial shareholder meeting in September to approve its sale to Web.com and avoid insolvency.

The company reported an $18 million loss after tax from its continuing operations for the half to June 2020 down from a profit of $1.6 million in the corresponding period for 2019.

It’s underlying EBITDA after corporate and unallocated costs for the period was a profit of $0.4 million down from $2.7 million in the same period for 2019.

Webcentral, which rebranded from its former guise as Arq Group in July, has been struggling since at least November last year when the company revealed that its enterprise division’s performance was faltering, and the group was struggling to meet its debt obligations.

Since then, the company has been pursuing a strategic overhaul of its operations in a bid to sell off its assets and pay down debts, including its enterprise and SMB divisions.

In February the company reported an after-tax loss from continuing operations of $43.7 million for the full year ended 31 December 2019, Arq posted, up from $15.4 million the previous year. After accounting adjustments, the loss ballooned to $129 million compared to a $2.5 million loss in 2018.

Later in that month the group announced that it had sold its enterprise division, including the Arq brand, to Sydney-based investment firm Quadrant Private Equity for $35 million in February.

The company’s small-and-medium size business (SMB) division had been understood to be performing solidly at the time raising optimism for the hopes of a quick sale of the division. However, in April updated its FY2020 earnings guidance to reflect a downturn small business spending as a result of the pandemic and announced it was cutting costs.

In its filing today the company revealed that it remained concerned about the impact of COVID-19 on its business.

It said that “the effects of ongoing measures introduced by State and Federal governments to limit transmission of COVID-19 (including the forced closures of business, overseas and domestic travel bans and quarantine requirements) will likely have a material negative impact on Australia’s overall macro-economic environment to which Webcentral is exposed”.

The group changed its brand in July after announcing its sale to US-headquartered Web.com for $12.2 million pending approvals from the Australian Foreign Investment Review Board and shareholders at a meeting scheduled to be held late September.

The company has entered into a scheme of arrangement with Web.com which will see the US firm refinance Webcentral’s debt.

The company warned that unless the scheme is approved there was a risk that company would not be able to continue and have difficulty obtaining alternative financing.

That included a $2.5 million payment to its existing financiers which falls due on 30 November 2020, the company said. However, it remained confident that the company would survive.

“Based on current interactions with its existing financiers and with Web.com, as well as forecasted cash flows, the Directors are satisfied there are reasonable grounds to conclude the Company can continue as a going concern,” the company said.