Emeco slumps on downgrade

SHARES in earthmoving equipment company Emeco were slammed in morning trade after a profit downgrade, stemming from disputes and project delays in Australia and Indonesia.
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Lauren Barrett

In April, Emeco said forecast operating net profit after tax for the 2013 financial year would be in the range of $A40-50 million.

Today the company reduced its earnings outlook to $35-36 million, sending its shares spiralling down 14.7% to 32c just after 11am AEST.

Emeco cited a number of factors for the downgrade, including a decline in Australian utilisation to 42.5% since the last operating update.

An expected uplift in utilisation towards the end of FY13 through the deployment of equipment did not occur due to project delays.

In Indonesia, the company anticipated receiving a number of payments associated with a contract that ended during the second half of 2013.

While the company is continuing to pursue them, the dispute has not yet been settled and as such no payments have been pocketed.

Meanwhile, in Canada, the company has been impacted by a more subdued environment in the early stages of the summer work oil sands program.

Emeco said lower than normal operating hours would lead to lower revenue than previously expected.

Despite encountering setbacks in its Australian and Indonesian divisions, Emeco said activity in Chile remained robust with full fleet utilisation and an encouraging business development pipeline.

Adding to the company’s woes, Emeco is forecasting a non-cash impairment charge of about $7.5 million post tax for the financial year.

The impairments are in connection with the company’s Guildford facility in Western Australia and legacy inventory from the discounted sales and parts business.

Emeco managing director Keith Gordon remained upbeat in light of the downgrade.

“We are managing our Australian and Indonesian businesses in anticipation of the current challenging conditions continuing well into the 2014 financial year,” he said.

“We expect these businesses to continue to deliver strong free cash flow through this period and we will continue to work closely with our customers to identify opportunities where Emeco can add value to their operations.”

Gordon said the company looked forward to another busy winter season in Canada.

The company was continuing to manage costs within its Australian and Indonesian divisions, with employee numbers being reduced where possible and discretionary maintenance programs being strictly controlled and prioritised.

Emeco delivered NPAT of $25.1 million for the first half of FY13, down 14% year-on-year.

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