Contractor, Coffey International, has been forced to issue a further statement after its earnings downgrade a week ago – this time it’s to reassure investors that it is not in trouble with its bankers.
The company says it believes it will meet its banking covenants (which are rules governing the relationship of things like profits or cash flow to debt and interest cover) in June, just as it had done in March.
Last week’s downgrade the company revealed a big hit to earnings from the cancellation or postponement of 54 projects in its geosciences division. The company has been forced to cut 150 jobs and will take between $9 and $10 million in restructuring costs.
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.
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.
"Continuing to reduce our debt and increase our financial stability remain key priorities," the company 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".
Yesterday, Coffey said that it had "received numerous questions in relation to its bank debt and applicable covenants".
In a statement, Managing Director John Douglas said:
“As a matter of policy, Coffey does not comment on its banking covenants, regarding them as part of a confidential contract with our bank. I can however confirm that:
• Coffey’s covenants are entirely related to the Company’s financial performance. For the avoidance of any doubt, Coffey’s covenants are not now and never have been linked to the market value of our shares, which is outside the company’s control
• As reported on April 24, Coffey met all banking covenants in March 2013
• Management has a very high level of conviction that the company will meet all banking covenants in June and for the foreseeable future
• Management has not issued guidance for FY2014 but expects the benefits of the recently announced restructure to contribute to ongoing strong cashflows
• Coffey has a good and long standing relationship with its bank. Coffey’s banking facilities were recently renewed for a further three years to February 2016. The bank continues to be strongly supportive of the the company, its board and its management.”
Coffey shares ended at 15.5c, up half a cent on the day and 4.5c (or 45%) on the 10c they fell to at the close on May 13 after the downgrade announcement.
That’s another example of how this selling on downgrades often overshoots because many investors sell like headless chooks and don’t stop to think.
COF – A Skittish 2013
