Downturn in mining hits Imdex revenues
Mining services operator Imdex has warned shareholders to expect little improvement in earnings in the year ahead, signalling there will be no recovery in minerals sector demand until 2015 at the earliest, since activity in the sector is yet to bottom.
As a result, the company's September quarter revenues slumped by a further 28 per cent year on year to $53.3 million, due to weak trading conditions in the minerals division where revenue fell a heavy 39 per cent to $35.2million.
The impact was softened by a firm performance by the oil division where revenue rose 10 per cent to $18.1 million in the quarter.
The sharp fall in revenue resulted in the gross profit for the quarter diving by 84 per cent to just $2.7 million.
"The global minerals industry is in a cyclical downturn, of which there can be no doubt," the managing director, Bernie Ridgeway, told shareholders late last week.
"How long the downturn will last is open to debate. We have taken the view that subdued trading conditions will persist in the minerals industry for the balance of FY14 and may improve in calendar 15."
Pressures on Imdex have been mirrored by others in the sector such as Boart Longyear and Emeco Holdings.
Imdex said spending by large and mid-sized miners remains soft with the hiring of its specialty equipment down 23 per cent in the September quarter.
Unlike others trading in the same sector that are listed on the ASX, Imdex has a growing exposure to the oil and gas sector, where spending levels remain buoyant, which has prompted the company to continue investing to build its presence.
"Profits are reduced in the short term as we continue to progress our business strategy and invest in spending on product development in the minerals and oil and gas sectors," Mr Ridgeway said.
Spending on selected personnel and equipment are continuing, primarily in the oil and gas division and select areas within the minerals division, he told shareholders.
Even with the extremely low profitability, cash levels were boosted recently with the sale of around half of its stake in Sino Gas and Energy, raising a gross $24 million.
InvestSMART FORUM: Come and meet the team
We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.
Want access to our latest research and new buy ideas?
Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.Sign up for free