The shareholder reaction was easiest understood yesterday to the loss reported by UGL – the shares were sold down by more than 5% to $1.85 after the mooted loss on a huge power station project became a reality.
The company also reveals tens of millions of dollars in other write downs as a new CEO goes through the books and rebalances asset values.
As a result the company has dropped its interim and final dividends.
“The future reinstatement of dividends will be considered by the board when underlying earnings have normalised and it is considered appropriate in the context of UGL’s capital requirements and outlook,” the company said in yesterday’s statement.
That suggests if the power station contract remains problematic into the 2015-16 financial years, shareholders will have to wait longer for a resumption in payouts.
UGL yesterday reported a first half net loss of $120.8 million after taking $175 million of provisions against write-downs for the power plant contract for the Ichthys gas project in Darwin.
The latest loss follows the reported $31.3 million first half profit a year ago.
UGL 1Y – UGL shares under selling pressure on first half loss
UGL said yesterday it was taking a $48.5 million impairment charge on the development of narrow gauge locomotives, a $9.7 million impairment on write-downs on bogie manufacturing in India, a $14.9 million impairment on property and a $5.3 million impairment on rail inventory.
The problems with the Darwin power station first appeared last November when UGL’s stock price dropped 15%.
The company said the $550 million Ichthys power plant project, a 50-50 joint venture with US engineering group CH2M Hill for Japan’s Inpex gas group, was facing almost $200 million of cost blowouts due to design changes and delays.
At the same time chief financial officer Robert Bonaccorso will leave the company on March 13 and will be replaced by Ray Church, the former CFO at Tenix.
UGL said "a complete reprogram" of the Ichthys project had now been undertaken and it will be completed later than expected.
UGL said the cash impact of $175 million in provisions on the Darwin project will be spread over three years.
“There is no guarantee that additional cost growth will not occur,” new CEO RossTaylor said yesterday. "However, if commercial negotiations are successful this may result in an improvement to our current position."
First half underlying net profit after tax was down 41% to $29.3 million.
But UGL said earnings before interest and taxation in its main engineering business were up 9% to $39.3 million due to increasing rail maintenance business revenues and new maintenance contracts for power and liquified natural gas plants.
