And another mining services group, Ausenco (AAX), revealed a big downgrade yesterday, with a trading loss of more than $20 million forecast for the year to December, which was a big turnaround from a forecast profit a few months ago.
And there was a quick fund raising also announced yesterday, at a deeply discounted price, which will upset some shareholders.
Ausenco issued the series of statements yesterday detailing the loss and capital raising, after suspending itself on Wednesday.
The suspension was the first inkling shareholders had of the company’s problems.
The shares will remain suspended at $1.20 while the first part of the issue is conducted. With the new issue to be priced at 70c each, the shares will fall sharply when trading resumes.
But curiously, the company didn’t issue a statement detailing the downgrade, loss details and outlook outside a presentation to analysts yesterday (which wouldn’t be seen by most small shareholders) and a separate statement on the details of the capital issue, which will be done at a ratio of 4 for 11.
And to help recapitalise itself through a $31 million accelerated rights issue, the company is looking to discriminate against shareholders by making the issue non-renounceable – just as Virgin Australia has done, as well as a small Sydney property group, Folkstone.
A non-renounceable issue means there’s no rights trading on the ASX, which in turn means that shareholders upset with the company’s performance (and who wouldn’t be after yesterday’s confusing announcements) can’t sell their rights to the issue for a small amount of money.
They either have to put up, or allow themselves to be diluted without any further compensation.
AAX YTD – Ausenco needs more money after shock losses and revenue slide
And shareholders should be upset – the issue being priced a 41% discount to the $1.20 share price Ausenco shares were trading at earlier this week – tells us that the company needs the extra capital, quickly, and has a financial black hole that needs to be filled, quickly.
Given that knowledge, you’d expect retail shareholders won’t be big supporters of the issue because the losses, downgrade and issue have come out of the blue. (Like those from Forge, and several others, e.g. WorleyParsons.)
The bottom line for Ausenco is that it has been badly caught out by the downturn in the resources sector – oil and gas industry and the mining industry – especially coal and iron ore.
The company says it will report a net loss after tax of $35.7 million for the year to December (Ausenco said this equates to an underlying net profit of $5.5 million, but it also said that previous guidance had been for underlying earnings of between $14 to $16 million, so on this basis, earnings are down a massive 66%).
Revenue is expected to fall by around $70 million, to $450 million, from a range of $490 – $520 million.
The company said conditions were "challenging across the industry" (that’s hardly new news). The company also said It is facing pressure from clients on payment terms (as are all its competitors).
As a result, "One-off costs, goodwill write-offs and lower revenue has lead to a downward revision to guidance".
But there was a note of optimism. The company said in its presentation that "conditions have been flat but are beginning to improve in certain regions/sectors and the management restructure has positioned Ausenco well to exploit opportunities to maximum advantage".
As a result, the company said it was expecting earnings before interest, tax, depreciation and amortisation to recover to a range of $24 million to $28 million for 2014 (from the loss for 2013 forecast at $24.5 million and underlying EBITDA of $22.3 million (which is pie in the sky given the reality of the company’s weak financial position).
