Sydney-based construction and contract mining firm WDS Ltd has cut its full-year profit forecast by more than 20% as the delays to spending by resource companies bites and the company is forced to make provision for an onerous contract.
WDS expects net profit to be between $21 million and $23 million for the 12 months to June, compared with the forecast of $27 million given last month, the company told the ASX yesterday in an update.
That will still be higher than the 2008 outcome, but not as much as previously forecast.
"WDS now anticipates that the FY2009 result will be in the range of EBITDA $55 million to $60 million (FY2008 EBITDA $45.5 million) with corresponding NPAT within the range of $21 million to $23 million (FY2008 NPAT $18 million).
"The financial impact of the changes in outlook of the Construction Division has been assessed as immaterial as it relates to the FY2010 and FY2011 plan and forecast. Therefore, WDS remains confident that its medium to long term growth profile will remain unchanged," the company told the market.
Delays in the coal seam gas projects in Queensland were a major factor. These are to allow some companies time to plan their pipeline construction to take account of the need to export liquefied natural gas (LNG) in the future.
WSS said there was still potential from coal seam gas with companies aiming to export LNG from Gladstone (Santos, Arrow, Origin and BG Group), illustrating the long term growth potential of the sector. The company says it expects growth from the sector to re-emerge in a year’s time.
WDS also made a provision of $1.7 million for the cost estimate for the Tenix project on the Gold Coast, which the company inherited when it bought the MacCormick civil and tunnelling business in August 2007 and had classified as an onerous contract.
WDS said losses at its construction business would be offset by stronger than expected results in its mining division.
The Mining Division continues to perform well against budget and is forecast to exceed its plan in respect of the full year 2009.
However based on recent discussions with clients, WDS now anticipates that changes in its customers’ short term work programs in Coal Seam Gas (CSG) development will adversely affect the Construction Division results.
WDS said the anticipated reduction in forecast "is primarily driven by events that are of a timing or one-off nature. In particular: Schedule Amendments: Short term work re- programming primarily focused on CSG projects, to enable export LNG project planning to occur.
"Several of these have indicated to WDS a desire to alter pipeline field development activities in the short term to create a planning window. Rescheduling of CSG field development is considered necessary to realign the Queensland CSG sector delivery capability for LNG export.
"As such it underlines the maturation of the sector and the long term growth potential associated with it. WDS remains confident of growth in its business from this sector and will continue to expand its capability to service its clients in the sector.
"It is expected that these growth opportunities will recommence from Q1 FY2010 onwards."
WDS said the Tenix project was acquired as part of the acquisition of the MacCormick Civil and Tunnelling business effective on 31 August 2007 and was classified as an onerous contract in the accounting for that acquisition. WDS says it is currently pursuing full recovery of costs associated with this project.
The effect of the above CSG works re-programming, reduced project activity from oil related developments and the Tenix provision will cause a reduction in the FY2009 forecast results from the Construction Division.
"Contrary to the reduction in forecast results associated with WDS’ business in the CSG sector, the Mining Division continues to deliver stronger than planned results for FY2009, driven by continued focus on value add services to existing clients and continued diversification.
"This diversification is evidenced by the recent award by Newcrest’s Cadia Valley Operations of the Cadia East Exploration decline project in Central West New South Wales utilising a Walter Mining AM105 road header and specialist support techniques.
"This contract will lift overall equipment utilisation rates and contribute approximately $8.0 million in revenue to the Group in FY2009 and FY2010," the company said in its statement.
The shares eased 5 cents to $1.05.
