Meanwhile the darling of many investment analysts lately, Transfield Services, took a pounding Friday when it revealed a surprise earnings downgrade because of the impact of the strong Australian dollar.
The shares fell almost 25% after the services and maintenance group said full-year net profit would be lower than market expectations because of the rising Australian dollar.
The movement wiped more than $640 million off its market value as the shares dropped 24.5%, or $3.25, to close at $10. They hit a three month low of $9.73.
The shares had been trading around $9.50 in early February but jumped by around 25% in late February when it revealed a better than expected rise in first half profit. Its price has been maintained at these higher levels by a number of optimistic reviews by investment analysts who probably missed the impact the high Australian dollar would have on Transfield’s earnings as it pushed deeper into foreign markets, especially the US.
As if to emphasise the downgrade, the Aussie dollar crashed through the 95 USc mark on Friday night to close sharply higher. Parity with the US is now a real option this year and that will hit companies like Transfield.
Transfield said on Friday that its 2007-08 net profit before amortisation would be between $105 million and $110 million, compared with a market forecast of $115 million to $120 million.
That will still be up on the 2007 figure by around 30%, but not by the amount being forecast by some optimistic analysts.
Transfield said profit would be lower because of a strong Australian dollar, rising input costs (especially oil) and clients deferring work until the next financial year.
"We needed to put out this announcement as there was a lack of awareness of the foreign exchange impact on the business by the local community," said the company’s chief executive, Peter Watson.
"The strengthening dollar would result in a lower contribution from Transfield’s international businesses, with a reduction in earnings before interest, tax and amortisation of about $8 million to $10 million for the full year, on a constant currency basis."
The company also said it was spending money on its North American growth plan and the creation of a new major projects group, to set Transfield up for longer-term growth. This would result in a short-term drag on profit.
The company said EBITA for the full-year would still grow at least 30 per cent and the outlook for 2009 was positive.
Mr Watson said "We are confident 2009 financial year will continue to deliver strong organic growth fuelled by recent major contract wins and significant growth in Flint Transfield Services in Canada. We have just agreed with our relationship banks to a one-year extension of our tranche of debt maturing in July 2008."
"Transfield Services traditionally has a strong final quarter. However, the business is being impacted by a strong Australian dollar, rising input costs, a targeted investment in the platform for growth, and clients deferring work until the next financial year.
"The strengthening Australian dollar over the reporting period will result in a reduced contribution from our international businesses on our consolidated numbers. We expect the impact to be around $8 – 10 million of EBITA for the full year on a constant dollar basis. At the NPAT line the impact will be partially offset by the translation of amortisation, interest and tax at the higher exchange rate."
Shares in Transfield soared more than 24% on February 25, the day the company announced a 35.1% rise in first-half profit.
Mr Watson said at the time that the company had a strong pipeline of projects in the months ahead.
"Transfield Services has invested in building a robust platform for sustainable global growth to create long term shareholder returns. I reiterate that we remain comfortable with our positive outlook for FY2009," he said.
