Investors took the long handle to Transfield Services (TSE) shares yesterday after it revealed a weak result for the six months to December 31.
The shares were slapped lower, falling 12% to 85c, despite what appeared at first glance to be a small return to profit.
Transfield reported a net profit of $4.6 million in the six months to December 31, a turnaround from a loss of $246.7 million in the prior corresponding period.
But seeing the prior corresponding period included $275 million in impairments losses, the latest result was much weaker than it looked.
Underlying earnings before interest, tax, depreciation and amortisation fell 7% to $74.4 million.
Group revenues fell 2.6% to $1.8 billion.
And the company doesn’t see much chance of any great lift in activity soon.
It said yesterday that activity levels in Australia and New Zealand remain subdued leading into the second half of the financial year, but has hopes of an upturn appearing in the June quarter.
The company said it made additional cost cuts in the six months to December, sold assets in Abu Dhabi and Qatar, reduced capital expenditure, and reduced the unsustainable level of trade creditors. (Like so many other service companies, especially in mining, Transfield has had trouble getting clients to pay their bills.) That is now improving, the company explained yesterday.
TSE 1Y – Transfield shares hit by weak report
CEO, Graeme Hunt said revenue in the first half held steady despite a challenging environment, and overall margins had fallen by only 0.2% and the company’s infrastructure business in Australia and New Zealand, which represents most of company’s activity, was solid and had performed to expectations.
The company is looking for short term growth from the coal seam gas and oil and gas sector as liquefied natural gas developments move closer to being commissioned and operational.
And it sees growth in its property and asset services business in Australia and New Zealand expanding as the Australian government continues to outsource various functions (such as the $1.2 billion contract for the Manus Island detention centre).
Transfield said that over the next 12 to 24 months it would continue to sell non-core assets, including its Indian operations.
The company said it would abandon its regional operating structure and run its business through three sectors from 2015: defence and social services; infrastructure and property; and resources and industrial.
The changes would cut costs, improve revenue and profit growth, deepen customer relationships and "shape attractive commercial propositions that de-emphasise responding to commoditised bid paradigms" Transfield said yesterday in the profit announcement.
Transfield has already sold its 50% stake in its Transfield Worley New Zealand joint venture to partner Worley Parsons for $30 million.
The company reiterated its previous full year profits guidance for net profit after tax pre amortisation of between $65 million and $70 million.
"Despite the macro business environment which will tend to limit revenue growth in a number of key markets in H2 FY2014, the Company expects to report NPAT pre amortisation in the range of $65 million to $70 million after incurring $7.9 million of restructuring costs in H1 FY2014, due to ongoing cost reductions and the Company’s strengthened focus on execution discipline and targeted business development," the company told the ASX
Naturally, Transfield did not pay an interim dividend.
