Coffey restructure starts to bear fruit

THE turnaround at engineering consultant Coffey International remains a work in progress with a decline in mining sector revenues but some stabilisation emerging after a weak first quarter.

THE turnaround at engineering consultant Coffey International remains a work in progress with a decline in mining sector revenues but some stabilisation emerging after a weak first quarter.

Even so, investors reacted positively, pushing the shares up 2¢ to close at 38.5¢ after touching 40.5¢.

Softness in mining services forcing redundancies and restructuring charges helped cut earnings-a-share to 1.5¢ from 2.5¢ for the December half. Profit fell to $3.8 million from $4.8 million after $1.9 million in restructuring charges were booked. Revenues for the half rose to $359.8 million from $334.9 million a year earlier.

Debt hit $111.5 million compared with equity of $136.8 million and, while there was an increase in cash held, an unspecified amount is tied up in performance bonds and the like.

Underlying earnings before interest, tax, depreciation and amortisation of the geosciences division, the group's largest, fell to $12.1 million from $16.3 million a year earlier, with the international development division contributing $8.9 million, up from $8 million.

Geoscience division revenue was hit by clients becoming more "risk averse" and deferring major projects, the company said. Mining revenue from the division fell to $37.5 million from $42 million a year earlier but with oil and gas revenues rising to $26.8 million from $15.6 million. The profit margin of the geosciences division fell to 9 per cent from 12 per cent.

"A turnaround is never an overnight story," the company's managing director, John Douglas, said.

The company was wary about calling a pick up in the second half, pointing to the improved margins and lower interest expense expected from a debt refinancing to lead to a rise in the net profit in the second half.

"You can tick off some of the boxes - cash flow, improved transparency. Revenues are robust but margins are contained," one analyst said.

There was the possibility of further restructuring, with a question over the project management business, which has negligible earnings, and work needed to lift returns from the geosciences division, the analyst said.