Macmahon profits take a hit

In December Macmahon said it expected full-year profit after tax for 2009 to be similar to the $A48 million achieved in the 2008 financial year.However, today Macmahon said profit after tax was expected to be $15-20 million, with revenue of around $1.4 billion.The Perth-based company said the mining division had been the hardest hit, with monthly revenues 30-40% lower on average than six months ago, equating to over $250 million of annualised revenue.The company’s bottom line has also been hit by restructuring and redundancy costs.In response to the sharp deterioration in market conditions, the company has reduced employee numbers by 420 over the past four months, which includes site employees and corporate support staff.The completion of two coal contracts will see a further 360 redundancies over the next two months.Macmahon has been affected by contract cancellations, reductions in the scope of contracts, severe wet weather in Western Australia and Queensland, slower than expected progress in the recovery of claims and variations on two construction contracts.“We’ve seen very significant cutbacks across nickel, copper, uranium, diamonds and, very recently, in coal,” Macmahon chief executive officer Nick Bowen said.Reductions in work include completion of work at Focus Minerals’ Perseverance Deeps mine, deferral of work on the Argyle diamond contract, reductions of work at the Ellendale diamond mine and BHP Billiton’s Olympic Dam, and the closure of Xstrata’s Sinclair nickel mine.Macmahon also announced today that BHP Billiton Mitsubishi Alliance would not extend the contract for work at the Goonyella coal mine beyond its April 2009 completion date, due to recent changes to the mine plan.Last week BMA also advised that the contract for its recently purchased Saraji coal mine would be terminated early.The contract was scheduled to run until February 2010, but will be terminated by the end of May 2009.However, Macmahon said that Peabody’s Eaglefield coal mine was ramping up and the company would be able to utilise some equipment and personnel from Goonyella and Saraji.The company has higher hopes for the construction sector after being part of a winning consortium to build a $500 million railway as part of BHP’s Rapid Growth Project 5 in the Pilbara.Macmahon said the federal government’s infrastructure spending package should also benefit the company.“Over the next 12 months, we expect to see a smaller mining contract business, offset by a growing construction business, with the aim of maintaining revenues around current levels and improving profitability,” Bowen said.Looking ahead to the 2010 financial year, the company said it has $900 million in revenue already secured, down from $1 billion at the same time last year.The order book currently stands at $1.6 billion.However, Macmahon expects to add to that figure with a number of mining contracts due for renewal within the next 12 months.The company said it was also in advanced negotiations for a number of construction contracts.Due to the lower free cash flow, gearing is currently just under 40%, compared to 12% at December 2008.

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