Shares in resources services group, WDS came out of a trading halt in place since before Easter yesterday and they promptly fell more than 12% after the company revealed more problems and a loss for the year to June.
The bottom line was that investors didn’t like the news of an expected slump into the red for the year to June.
So the shares fell 9.5c to 68.5c, 18.5c above the all time low of 50c and a long way from their 52 week high of $2.28.
WDS (formerly Walter Diversified Services) has had a rough few months with a succession of profit downgrades since late 2009, culminating in the departure of the CEO in mid February and warnings of further earnings pressure. The company also revealed a wide ranging review of its various businesses.
On April 22 the company asked for a trading halt ahead of the release of the review details by April 27.
That happened yesterday and the market’s negative reaction tells all.
The market was especially concerned by the company’s new guidance of a loss of $7 to $10 million, instead of the previous guidance (reduced) of a profit of $7 million for the 2010 financial year.
The company said the ongoing issues "are expected to result in a reduction in the FY10 NPAT of $6.8M from our previous guidance of 2 February 2010, of NPAT $7M."
"In addition FY10 results have also been impacted by: Restructure costs ($3.0M), Underperforming contracts in micro-tunneling ($1.7M), Close-out of commercial positions on contracts ($3.5M).
"As a result the Company anticipates a NPAT loss from normal earnings for FY10 to be in the range $7M to $10M."
WDS said the review is still continuing, but the first part had been completed with "management’s key focus being the realignment of WDS’ cost base and structure with its current revenues whilst preserving capacity to respond to the anticipated upswing in Coal Seam Gas (CSG) -related work".
The company said the results of the review so far will see Immediate changes including:
- Restructure of the previous Oil & Gas and Infrastructure & Services divisions into a single Construction Division resulting in significant staff reductions and facility rationalisation
- Addressing underperforming business streams by a resetting of project selection criteria and strengthening project controls and reporting
- Tighter financial controls and enhanced communication throughout all levels of the business
- Accelerating negotiations to close out contracts and address the challenging Cooper Basin term contract which, given the reduced work flow, has resulted in losses at the project level
- Greater focus on working capital management.
The company warned that severe rain and on-going flooding across the Cooper Basin and Surat Basin and continuing delays in the award of CSG construction work continue to impact profitability during 2H FY10.
"These ongoing issues are expected to result in a reduction in the FY10 NPAT of $6.8M from our previous guidance of 2 February 2010, of NPAT $7M.
"In addition FY10 results have also been impacted by: Restructure costs ($3.0M), Underperforming contracts in micro-tunneling ($1.7M), Close-out of commercial positions on contracts ($3.5M)
"As a result the Company anticipates a NPAT loss from normal earnings for FY10 to be in the range $7M to $10M," the company said.
WDS Chairman, Jim McDonald said, “Performance this year has clearly been unacceptable and the company is working to address all underlying issues toward improving the Group’s financial position, whilst preserving our capacity to serve the CSG market in what has become a very difficult year for contracting in the sector.
“Despite these disappointing developments there is some positive news.
"The Mining Division continues to perform very strongly and negotiations are continuing with major customers for early work opportunities in the CSG sector with some of these already at an advanced stage”, he said.
