Shareholders in engineering services group UGL have had a couple of near death experiences in the past couple of years as its finances have been battered by write-downs and the poor performance generally of contracts in the development of the multi-billion dollar Ichthys liquefied natural gas project off the coast of northern Western Australia.
Losses, the suspension of the dividend and a change in some senior executives have hurt UGL and its shares. The shares fell as low as $1.33 in March 2015 as problems on that project rattled investor confidence in the stock.
And in the last 12 months the shares have risen as high as $3.72, and as low as $1.67, with the Ichthys contracts the big concern. The shares closed up 4.9% at $2.77 yesterday.
Helping support that rise was a smaller loss for the year to June 30 and a hint that shareholders might (only might) start receiving dividends this financial year.
UGL yesterday reported a loss of $106.3 million for the year to June, more than half the 2014-15 year’s loss of $236.4 million.
The latest loss included a $200 million write down on at the Ichthys project, after the company in June disclosed a serious dispute over payment claims and effectively downgraded earnings guidance for the next two years. That was after a $150 million write down the year before.
In June, UGL said it no longer anticipated any profit from the Ichthys structural, mechanical and electrical package (SMP) and power plant (CCPP) projects through the next two financial years.
UGL said it expects a commercial settlement on its claims to May this year, by the end of of this month.
Operating revenue across the group was stable at $2.3 billion, in line with previous guidance, according to directors who declined to pay a final dividend, which had been foreshadowed in June.
“The future reinstatement of dividends will be considered by the Board as appropriate in the context of UGL’s capital requirements and outlook,” directors said, which was seen as allowing some leeway for a return to payments should trading continue to improve.
In fact UGL chief executive Ross Taylor was upbeat yesterday, saying in a statement that the company was experiencing strong progress across its base businesses.
“We secured $2.4 billion in work during the year and have continued to sell well in July and August with an additional $800 million in wins secured, including the recently announced New Intercity Fleet contract with the NSW Government which further broadens our recurring revenue base,” Mr Taylor said.
“The base business is well set-up as we enter FY17 to meet the objectives we set more than a year ago, including revenue growth of around $300 million and further EBIT margin improvement to approximately 4 per cent,” he said. UGL has been struggling with delays on the two Ichthys contracts: a $740 million joint venture building LNG trains, and a $550 million joint venture building a power plant. The lack of performance from these contracts have proved to be something of a millstone for the company and management so far as the wider market is concerned.
UGL shares plunged 33% on June 6 to $2.30 after it said negotiations over claims with the developers of the LNG project were experiencing “substantial delays and disruption”. That’s when the new write down was revealed and the suspension of the dividend for up to 2 years.
