Not unexpectedly, Perth-based contractor and engineer, Monadelphous (MND) reported lower earnings for 2014-15 and slashed its dividend as it looks to another tough year in the resources sector.
And just as unexpected was the thinking behind the forecast for another tough year – the contraction in spending (and new projects) in the iron ore and oil and gas sectors, which is where bulk of Monadelphous business is based.
And the outlook hasn’t been made any rosier by the slide in commodity prices in the past couple of months, especially oil and gas which appears to be heading for another shake out thanks to continuing multi-year lows.
Despite the downbeat tone, investors reacted positively, pushing the shares 8.1% higher to $7.84 at one stage before they eased to be up 0.9% at the close at $7.32.
MND 2Y – Monadelphous highlights mining services still under pressure
The company will pay a final dividend of 46 cents a share fully franked, taking the full-year dividend to 92 cents a share fully franked. This is 25% lower than a full year dividend of $1.23 for 2013-14.
Net profit after tax for the June 30 year fell to $105.8 million, down 28% from $146.5 million a year earlier or 23.6% from an underlying result that excluded gains from the sale of its Skystar business.
Monadelphous said the "further deterioration of market conditions" was reflected in sales revenue for the period, which fell 19.9 per cent to $1.9 billion, just scraping inside guidance from February that full-year revenue was "anticipated to 15 per cent to 20 per cent lower" than the previous year.
The company said opportunities for major construction contracts in resources and energy "are likely to remain at reduced levels" but the prospects for maintenance and services work are expected to improve in the oil and gas sector as projects become operational.
"Margins will remain under pressure as competition is high for a smaller pipeline of work, with capital expenditure decisions delayed and operating expenditure tightened," Monadelphous said.
"The company will focus on additional initiatives aimed at reducing costs to protect margins and improve sustainability."
The story is not new – we have heard it before from a host of companies servicing the resources sector. It is likely to be a familiar refrain over the next year as well. Ahead us comes the annual results of WorleyParsons, which has revealed impairment cuts of $200 million.
