The downturn in spending in resources, especially mining and oil and gas has again caught up with engineering group Monadelphous (MND) which yesterday issued a warning about a looming fall in first half revenue, and presumably profits.
The Perth based company said that opportunities for new construction contracts are likely to remain at “reduced levels” as customers focus on cutting operating costs and improving efficiency.
CEO, Rob Velletri told yesterday’s annual meeting that lower resource and energy commodity prices would see market conditions in construction continue to be competitive and “remain challenging”, with the company expecting a “significant reduction in demand" for construction.
“Australian market conditions continue to be competitive and are expected to remain challenging on the back of lower resource and energy commodity prices,” Mr Velletri told the company’s annual general meeting in Perth yesterday.
MND 1Y – Monadelphous sees ‘significant reduction in demand’
He said a significant fall in construction demand was continuing to hurt sales revenue, leading the company to forecast first half revenue will be around 10% lower than the second half of the 2014-15 financial year.
The company says its total workforce fell 15% over the year to June and it has secured around $600 million of new work since July. “Customers will continue to focus on reducing operating costs and improving efficiency,” Mr Velletri told the AGM in Perth yesterday.
“Opportunities for new major construction contracts in these markets are likely to remain at reduced levels.” Despite the gloom, the company’s shares jumped more than 5% to close at $6.82 in yesterday’s 2.2% surge in the wider market. Mr Velletri said full-year sales revenues would be “dependent on project timing and new awards” and the company would focus on reducing costs to protect margins.
But on the maintenance front, he was more upbeat, saying work in this area was expected to be more positive, particularly in the oil and gas sector.
Monadelphous has about $1 billion of maintenance service tenders in progress, with “award decisions on a number of these" expected before the end of the year.
“More broadly, we are seeing maintenance service activity normalise following a long period of deferral," he said. Mr Velletri said the company remained committed to growing and diversifying its revenue sources long-term – "and our strong balance sheet provides the capacity to pursue investment opportunities that support these objectives," he said. But in the meantime, it is battling, like its peers, the huge downturn in spending across all of the resources sector.
