Small engineering and mining services group Coffey International (COF) was an unlikely "first cuckoo of spring" for the sector yesterday when it revealed that nothing had really changed in the sector in the past few months.
Coffey was the first of the large group of companies – small medium and large – operating in the mining services sector to report, and it didn’t produce any real surprises with its tale of job cuts, revenue drops and lower profits.
That’s probably why the shares jumped more than 4% to 25.5c at one stage – the lack of more bad news on earnings was seen as a positive and a relief to the way a string of companies from Forge Group (FGE) to WorleyParsons (WOR) and others have sprung earnings surprises on the market in the past few months. The shares were 10c late last year.
Coffey promised to provide an update for the full year in early May – that’s when the investor reaction will be far tougher than what we saw yesterday.
Investors saw some promise in the statement – positive remarks about the good impact the weakened Aussie dollar is having, job cuts and cost controls and signs the slide in 2013 has steadied.
But the shares fell away in late trading and lost a cent to close at $23c, down 4.1% on the day.
COF 1Y – Coffey results has no shockers
No dividend will be paid for the six months to the end of December – an understandable omission given the weakness in earnings.
Coffey forecast that trading conditions would remain “tough” for the rest of the year.
The company said first half net profits dropped 45% to $2.1 million and more job losses were revealed – 170 jobs have gone in the company’s geosciences business, now its biggest business, while a further 30 have gone in project management.
“It is difficult to forecast second half earnings performance in the face of what we regard will be continuing tough conditions,” Coffey managing director John Douglas said in yesterday’s statement.
Group underlying EBITDA, which excludes $3.6 million of restructuring costs, rose 37% to $15.1 million. Group revenues dropped 11% to $322.9 million.
The claimed rise in underlying profit is a bit misleading seeing the company – like so many others in the sector – seems to be continually restructuring, so much so that these costs seem to be an every day business charge and not a rare on-off impost.
EBITDA also rose in Coffey’s international development business, now its largest division with revenues of $168.2 million), to $9.8 million from $400,000 a year earlier.
Net debt fell slightly to $61.4 million from $58 million a year earlier.
"The Company is well-positioned for continuing tough trading conditions, particularly in Australia, but we have been careful to retain the capability and plans to scale-up quickly, off a lower cost base, when the business cycle turns upwards again," directors said in yesterday’s statement.
"The Project Management business contributed a small but positive result for the first 6 months," they added, thanks to the cost cuts and job losses.
"The falling value of the Australian dollar, relative to the US dollar, had a positive impact on profitability in the first half as Coffey’s offshore earnings were converted to Australian dollars.
"Offsetting the positive profit impact, there was a negative impact on debt at 31 December 2013, amounting to $1.1 million (net), on translation of the portion of debt denominated in US and Canadian dollars.
"In the future, a declining Australian dollar will make Coffey’s Geosciences business more competitive with European and American firms when bidding for work."
