Macmahon hands over building to Leighton
Macmahon on Wednesday outlined its new strategy to investors, saying it would become a dedicated full service mining contractor.
It has signed a $16.3 million deal with Leighton Holdings to take over the bulk of its construction projects, including equipment and staff.
It will also undertake a fully underwritten $80.7 million capital raising to strengthen its balance sheet after heavy writedowns on its construction business. The moves come after a review of Macmahon's businesses and costs, which has led to the axing of up to 50 jobs.
Chief executive Ross Carroll said Macmahon had been forced to make substantial writedowns on its construction business, and as a result the group's net profit for financial 2013 would be between zero and $25 million.
Macmahon expects to be hit by one-off costs of about $10 million as a result of its restructuring, and redundancy and closure costs.
The latest earnings guidance comes after former chief Nick Bowen shocked investors in September with news that its profit for this financial year would be about half the $56.1 million reported last year.
Four weeks earlier, Macmahon had confidently predicted a 20 per cent rise in profit.
But Macmahon has suffered cost overruns at its Hope Downs 4 rail project in Western Australia and expects fewer contract wins amid a slowing in the mining boom.
Mr Carroll said with the new strategy in place, Macmahon's mining business would deliver about $1.2 billion in revenue for 2013, increasing to $1.4 billion in 2014.
The offloading of the construction business would also help reduce the volatility in Macmahon's earnings.
"Mining already has a secured order book of $1.9 billion and, with expected contract extensions and the anticipated award of the Christmas Creek Mine expansion contract, this figure is expected to rise to above $4 billion," Mr Carroll said.
Under the deal with Leighton, Macmahon will retain projects nearing completion as well as residual exposure to its share in the South Road Superway project and the Trangie Nevertire irrigation scheme.
Frequently Asked Questions about this Article…
Macmahon announced it is exiting the construction business to become a dedicated full‑service mining contractor. For investors this matters because the move is intended to reduce earnings volatility, focus the company on its larger mining operations and stabilise future revenue after heavy writedowns in construction.
Macmahon signed a $16.3 million deal with Leighton Holdings for Leighton to take over the bulk of Macmahon’s construction projects, including equipment and staff. Macmahon will keep projects nearing completion and retain residual exposure to certain schemes like the South Road Superway and the Trangie‑Nevertire irrigation project.
Macmahon is doing a fully underwritten $80.7 million capital raising to strengthen its balance sheet after substantial writedowns in its construction division. The funds are aimed at shoring up finances as the company restructures and shifts focus to mining.
Macmahon guided that net profit for FY2013 would be between $0 and $25 million. That downgraded guidance reflects substantial writedowns on the construction business and related one‑off restructuring, redundancy and closure costs.
Macmahon expects about $10 million in one‑off costs related to restructuring, redundancies and closures. The company also announced it would cut up to 50 jobs as part of the change in strategy.
Macmahon suffered cost overruns on the Hope Downs 4 rail project and faced a slowdown in contract wins amid a cooling mining boom. Those problems, together with writedowns in construction, led to a significant profit downgrade compared with earlier forecasts.
Macmahon's CEO said the mining business is expected to deliver about $1.2 billion in revenue for 2013 and around $1.4 billion in 2014. The mining order book was $1.9 billion and, with expected contract extensions and the anticipated Christmas Creek Mine expansion award, the company expects that figure to rise above $4 billion.
Yes. While Leighton will take over most construction projects, Macmahon will retain projects that are nearing completion and keep residual exposure to specific non‑mining projects such as the South Road Superway and the Trangie‑Nevertire irrigation scheme.
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