Perth-based engineering contractor Monadelphous’s (MND) 2015-16 performance got a very solid thumbs down from unimpressed investors yesterday with the shares losing more than 17% by the close.
The company reported a 37% slide in net profit to $67 million (better than the 38% drop in interim earnings) on a 27% fall in revenue to $1.37 billion.
A year ago the company reported net profit fell 38% in 2014-15, so there is no sign of the weakness abating.
Monadelphous will pay a final dividend of 32 cents a share (down from a final of 46 cents a share a year ago), bringing the year’s total payout to 50 cents a share – far below 2014-15’s 92 cents distribution.
The shares ended the day down 17.7% at $8.99.
The weak performance was driven almost entirely by the company’s core Engineering Construction division which saw revenue plunge 39.2% to $757.6 million.
Meanwhile, Maintenance and Industrial Services revenue fell 2.1% to $608.4 million.
The company said it secured more than $1.1 billion of new work in the year to June, with approximately 70% being new oil and gas contracts.
That was part of its move away from the resources sector towards the oil and gas industry as the mining downturn continues to put pressure on the group (and others in the engineering sector).
The dying embers of the mining boom has been particularly hard felt by Monadelphous, as work dries up because of companies deferring or cancelling projects.
The company has been pursuing work in new markets to help offset waning demand in Australia for its engineering and construction services.
“While opportunities for new major resource and energy construction contracts are expected to remain at low levels, we are well placed to capitalise on growing maintenance opportunities, particularly in the oil and gas sector,” chief executive Rob Velletri said yesterday. That was the optimistic bit (and investors were not fooled, the shares losing 15.5% to $9.23 in a market up nearly 1%).
“The award of three long term oil and gas contracts, including a services contract associated with Shell Australia’s Prelude Floating Liquefied Natural Gas (FLNG) project, demonstrates our capability to deliver a diverse range of operations and maintenance services for both onshore and offshore facilities,” Mr Velletri said.
Monadelphous gave a bearish outlook (which seems to have spooked investors) , saying the resources and energy market conditions would remain challenging over the medium term against the backdrop of a prolonged downturn in the commodity price cycle.
“Customers are expected to maintain their focus on reducing capital expenditure, improving productivity and minimising operating costs,” the company said.“Opportunities for new major construction contracts in the Company’s core markets are likely to remain at low levels.”
However the company was more bullish in its outlook for maintenance and industrial services as new operations came on stream, particularly in the onshore and offshore oil and gas sector.
The trouble is that all service companies – from ALS, to WorleyParsons, to Programmed Maintenance Services, and more, are out hunting in every sector of mining and business for new revenue and earnings sources, and cutting prices and each other’s profits (if they exit).
