The slowing in the resources sector exploration and investment continues to hit mining services companies with Coffey International (COF) becoming the latest to downgrade its outlook and suffer a big sell off in its shares.
The company saw its shares end down a massive 43.5% or 13c to 10c at the close after the update yesterday (http://www.coffey.com.au/Uploads/Documents/13-May-2013-Trading-Update_20130513085529.pdf) which was more like a litany of woes, among which was the abandonment of a dividend after an earnings downgrade.
It was the second time this year that the company has warned of the impact on its business from the slowdown.
The company gave the market a heads up on April 24 that it was starting to see problems emerging with its contracts.
Those problems have deepened, resulting in yesterday’s downgrade.
The company has cut 150 jobs and will take between $9 and $10 million in restructuring costs after 54 of its Australian geoscience projects had been cancelled or delayed in the past six weeks.
Coffey cut its full year underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to between $27 million and $29 million, from earlier indications of at least $32 million.
Downgrade, no dividend sees shares plunge
With the impact of the restructuring charges included, EBITDA for the year to June is now expected to be $18-19 million, with restructuring charges now expected to be as much as $10 million, the company said yesterday.
"Continuing to reduce our debt and increase our financial stability remain key priorities," it said.
So it will not pay a final dividend, citing the "cash flow impact from the restructuring costs this financial year, and the deteriorating economic conditions for Australia".
It blamed the weakened result on "deteriorating market conditions", including a high Australian dollar, falling commodity prices and an uncertain political environment. Revenues in its Geoscience division fell 4% in the March quarter to $59.5 million (from the same quarter of last year) and that is expected to worsen this quarter from what the company said yesterday.
The company reports its full year results on August 12.
Much of the pain is being felt in Australia because, the company said yesterday, the high value of the Aussie dollar and the downturn in commodity prices. It said offshore contract work was not being as deeply impacted.
"The outlook far our lnternational Development business is unchanged. The business continues to deliver steady revenue streams and consistent margins. As such, we anticipate the full year EBITDA far this business will be between $16- $17 million."
Coffey is a specialised mining services company, offering consulting, environmental and technical services, predominantly to the resources industry, but also to the Infrastructure and Oil & Gas industries.
ALS Ltd, the renamed Campbell Brothers of Brisbane which provides testing and inspection services in Australia, the US and a number of other countries, has already warned that its testing volumes (and revenues?) are expected to fall.
The company is due to report its full year at the end of this month and but it wouldn’t surprise to see the company disappoint. But it does have a growing water and environmental testing business here and in the US that may go someway to offsetting some of the impact from the resources downturn.
