On Monday January 11, iSelect Limited (ASX: ISU) issued an earnings downgrade that rocked its share price. Citing "several strategic and operational issues" during the 2015 financial year, which persisted into the first few weeks of 2016, the health insurance comparison service saw its shares dip to a record-low 63.5c.
At the time of writing (25 January), shares stood at $0.92, despite starting the month at 1.19. The tumultuous period for the company led the guidance for its full-year earnings to fall by as much as 39 per cent, the Australian Financial Review reported.
A press release from iSelect, published by the Australian Securities Exchange (ASX), said the company could suffer a loss of $5 million in normalised earnings before interest and tax (EBIT), lowering the figure to between $15 and $18 million.
The tumultuous period for the company led the guidance for its full-year earnings to fall by as much as 39 per cent.
Review finds a number of issues
iSelect Chief Executive Officer Scott Wilson – who was appointed to the role in October 2015 when the company's shares stood at a three-month-high 1.79 – assisted external advisors in performing a strategic review of the company.
The findings show a series of strategic issues which fed into the downgrading, including a "significant" and off-trend increase in staffing costs for iSelect's health insurance division, and a failure to push ahead with technological change.
Other issues cited include:
- Replacing previously successful contact-centre development, training and recruitment programs with less-effective initiatives
- An off-trend drop in health insurance sales in the first half of the financial year
- A lack of investment in marketing
"The reduction in EBIT is disappointing, but what has become clear since my appointment as CEO is the importance of ongoing and additional strategic investment in the business to ensure iSelect creates long term growth for shareholders," Mr Wilson expressed.
iSelect is now looking at ways to bounce back, with "key strategic initiatives" published to allow the company to adapt to evolving customer needs.
A difficult few years
The strategic troubles are not the first experienced by iSelect during its so-far short tenure on the ASX. In October 2013, four months after the company began trading on the stock market, previous CEO Matt McCann stepped down following a revenue downgrade and board-level disagreement over strategy.
His successor, Alex Stevens, then resigned in October last year, shortly before iSelect announced they received a takeover offer from a firm later revealed to be US private equity company Providence Equity Partners.