WorleyParsons (WOR), which will split its company into three divisions, has lifted its restructuring costs in the past nine months to near $50 million as it seeks to cut costs to battle the continuing weakness in global resource industries.
The slowdown in orders and costcutting by big resource groups – from miners to oil and gas companies of all sizes – has already seen the company sack more than 2,000 employees in the past six months and cut tens of millions in costs from its businesses here and around the world.
In February, the group reported a 27% fall in first-half net profit to $119.8 million. The company also cut its interim dividend to 34c a share from 41.5c.
And WorleyParsons’ shares have lost around 35% of their value over the past 12 months, but reclaimed more than 6.9% yesterday with the market giving the latest restructuring announcement the thumbs up. The shares climbed $1.07 to end at $16.55.
The company revealed the splitting of its structure into three separate businesses (who said ‘silos’ are a bad idea in business structures?). This will cost $35 million, on top of the $13.6 million in costs revealed in the February interim results.
And a senior executive, Stuart Bradie, WorleyParsons’ group managing director of operations and delivery, is the highest ranked victim of the revamp. WorleyParsons said he will leave the company, having seen his job eliminated in the restructure by chief executive Andrew Wood.
“The reorganisation is expected to improve major project performance, deliver sustainable growth in earnings and enhance returns to shareholders,” Mr Wood said in yesterday’s statement. He added that the changes would would also deliver “cultural change.”
The reorganization takes effect from May 1, 2014 with financial reporting changes effective from July 1, 2014.
Under them WorleyParsons has created three new divisions – Services (which accounts for 70% of group revenue), Major Projects and Improve. Services will provide consulting and delivery services, Major Projects will execute large or complex projects, and Improve will manage operational and asset management contracts.
The changes follow a review announced by Mr Wood in February in another round of cost-cutting.
Mr Wood says the changes are aimed at better positioning the company for future earnings growth by improving delivery and offering a more competitive value proposition for customers.
“With the reorganization we are announcing today we are aligning the business to market conditions. It will simplify the corporate structure, reduce overhead costs and enable our staff to deliver greater customer satisfaction.
“We are refocusing the business on what we have been known for in the past – an intense focus on our customers and project delivery, and enhancing value for our shareholders.The reorganization is not only a structural change, it is also about cultural change to improve the way we do business and allow our staff to support our customers in being successful.
"Each business line will have full accountability and responsibility for customer satisfaction, generating sustainable earnings and providing a satisfactory level of return on capital invested. In addition, each business line will be responsible for providing and sourcing the optimal level of operational support required
"With the majority of support now provided in the individual business lines, our group functions at the corporate level will be streamlined. This will result in a lean corporate office, with responsibility for strategy and improved capital allocation, in addition to usual governance activities," Mr Wood said in yesterday’s statement.
WorleyParsons said the changes will boost profit margins from the 2014-15 financial year.
The company also reiterated existing guidance for full year underlying net profits after tax of between $260 million and $300 million.
That was a relief to the market as the company has developed a habit in the past year of making surprise statements and revealing earnings downgrades.
