MARKETS SPECTATOR: UGL falls down the mine

Shares in the resources services company tanked after it flagged a nearly 50 per cent fall in FY net profit, largely fuelled by miners cutting costs.

UGL shares plunged 15 per cent after the mining services company said today its net profit in the financial year will fall as much as 47 per cent from 2012 as the world’s biggest mining companies slash spending.

In an ASX statement UGL says its net profit in the 12 months to June 30 will be between $90 million and $100 million. Last year it made a net profit of $168.3 million and in February had forecast a profit of between $150 million to $160 million for FY2013.

UGL shares plunged 15 per cent to to $8.10 at 1500 AEST today, while the S&P/ASX200 Index was down 34.9868 points, or 0.7 per cent, to 5186 at 1410 AEST.  

“Ongoing uncertainty and volatility in commodity markets have driven a continued slow down in capital investment in the resources and infrastructure sectors with further delays of major projects impacting revenues in the engineering business,” said UGL chief executive Richard Leupen.

“Cost management programs of the major miners have led to reductions and cancellations across UGL’s operations and maintenance business. Underperformance across several power projects has also adversely impacted our second-half earnings outlook for the 2013 financial year."

In February UGL said its mining business had an order book worth $595 million and its engineering order book was $5.1 billion.

Today the company said its group-wide order book was $9 billion. Its property, rail and industrial maintenance units are expected to generate about $3 billion annually in sales in the 2013 and 2014 financial years. Engineering revenue in the 2013 financial year is expected to be $2.3 billion to $2.5 billion, a figure the company expects to be duplicated the following year.

In the six months to December 31, UGL’s engineering revenue fell 34 per cent to $904.7 million. Sales at its operations and maintenance unit fell 20 per cent to $261.6 million.

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