Huge write-down derails Macmahon's performance, but worst is over

MACMAHON HOLDINGS has posted an "unacceptable" profit of $1 million, due to a write-down on a rail contract. Net profit dropped 97 per cent for the year to June 30 from $37.9 million a year earlier, the Perth-based mining services and construction company said yesterday.

By InvestSMART · 17 Aug 2011

By InvestSMART ·
17 Aug 2011

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The company blamed the weak result on a disappointing first half, compounded by severe wet weather and the write-down of the $500 million RGP5 Rail North contract for BHP Billiton in the Pilbara region of Western Australia.

The chief executive, Nick Bowen, said the company had worked hard to try to overcome its disappointing first-half results.

He said Macmahon's outlook was positive and it had secured $1.25 billion of revenue for 2012 in mining and construction.

"Macmahon's order book is now at a record level of $2.8 billion and there is a very strong pipeline of work.".

In a separate statement, the company said it had won preferred contractor status to construct the first stage of the $300 million Solomon Rail project for Fortescue Metals, which would add $200 million to secured revenue for 2012.

Mr Bowen said the company won the 10-year, $900 million Tropicana Gold Project, one of the largest awarded to Macmahon's mining arm.

The Tropicana Gold Project, 330 kilometres east-northeast of Kalgoorlie, is part of the Tropicana Joint Venture, owned by AngloGold Ashanti Australia and Independence Group NL.

Mr Bowen said the company would deliver improved profits and returns this financial year.

Macmahon's revenue rose 22 per cent to $1.09 billion. It declared no final dividend for 2010-11, as opposed to 3? in 2009-10.

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Frequently Asked Questions about this Article…

Why did Macmahon Holdings report such a big drop in profit for the year to June 30?

Macmahon's net profit fell 97% to $1 million mainly because the company took a large write-down on the $500 million RGP5 Rail North contract for BHP Billiton, and its first half was weakened further by severe wet weather that disrupted operations.

What was the RGP5 Rail North write-down and which company was it for?

The write-down related to the $500 million RGP5 Rail North contract in the Pilbara region, which was for BHP Billiton; this write-down was a key reason for the weak annual profit result.

Is Macmahon's outlook positive despite the poor profit result?

Yes. CEO Nick Bowen said the outlook is positive — Macmahon has secured $1.25 billion of revenue for 2012 in mining and construction and expects improved profits and returns in the coming financial year.

How large is Macmahon's order book and what does that mean for investors?

Macmahon reported a record order book of $2.8 billion and described a very strong pipeline of work, which suggests more stable future revenue streams and potential recovery in earnings.

What new contracts did Macmahon win that should boost future revenue?

Macmahon won preferred contractor status for the first stage of the $300 million Solomon Rail project for Fortescue Metals, adding about $200 million to secured 2012 revenue, and it also won the 10-year $900 million Tropicana Gold Project for its mining arm.

Who owns the Tropicana Gold Project and where is it located?

The Tropicana Gold Project is part of the Tropicana Joint Venture and is owned by AngloGold Ashanti Australia and Independence Group NL; it is located about 330 kilometres east-northeast of Kalgoorlie.

How did Macmahon's revenue perform despite the profit fall?

Revenue actually rose by 22% to $1.09 billion for the year, showing top-line growth even though profits were hit by the contract write-down and weather-impacted performance.

Did Macmahon pay a final dividend for 2010–11 after the weak result?

No, Macmahon declared no final dividend for 2010–11, whereas it had paid a final dividend in the previous 2009–10 year.