Markets: A sinking feeling for Ausenco investors

The 2013 half-year report of engineering, construction and project management company Ausenco makes painful reading. Total revenue fell 17 per cent year-on-year to $262.7 million, as sales from the world’s fastest growing regions, the Asia Pacific and Africa, slumped by nearly a third. The company faced increased competition, resulting in some of its contracts being renegotiated. That resulted in less revenue, reduced margins and less work.

As a consequence, Ausenco’s cash flow slumped along with net profit. Earnings before interest, tax, depreciation and amortisation plunged 73 per cent to $8.5 million. Net profit fell 83 per cent to $3.4 million.

Ausenco’s answer to its dwindling bottom line is to shift some business to what it says are lower-cost countries, though it won’t say where. It intends to focus on oil and gas, infrastructure, environment and power-related work in the coming 12 months, hoping this will boost revenue and profits. The company says its minerals and metals business has stabilised and it is looking for new opportunities in 2014 as customers are looking for “cost certainty”. The acquisition of an oil sands consultancy will prove fortuitous, Ausenco says, as oil sands development in Canada is proceeding apace.

Such reassurances of business recovery have convinced some. Ausenco’s stock was up as much as 2 per cent at 1011 AEST. But the stock has dropped 45 per cent this year, as investors have fretted about a business subject to a slowdown in infrastructure and project management work amid a stumbling world economy that has affected formerly high-growth rate nations in Asia.

Ausenco seems to recognise the economic backdrop for its business is not improving. Its major strategic initiative is to “right-size our overhead cost” to “optimise margins” in “softer economic conditions”. This is hardly a buoyant forecast for the stock.