Mining slowdown hits UGL profits
Engineering and mining contractor UGL has slashed its full-year profit guidance for the second time this year as the slowdown in mining investment and poor project performance continues to bite.
The continued underperformance of its mining arm also strengthened the case for UGL to split its fast-growing property business from the group, and the contractor provided its strongest hint yet that it would do so.
Underlining the pressure on contractors as big miners wind back on exploration and capital spending as commodity prices wane, UGL said it expected net profit of $90 million to $100 million, compared with previously revised guidance of $150 million to $160 million given at its half-year results in February.
"Ongoing uncertainty and volatility in commodity markets have driven a continued slowdown of capital investment in the resources and infrastructure sectors with further delays of major projects impacting revenues in the engineering business," chief executive Richard Leupen said in a statement to the stock exchange on Wednesday.
"Additionally, the cost management programs of the major miners have led to scope reductions and cancellations across UGL's operations and maintenance business."
UGL slumped $1.63, or 17 per cent, to $7.94 on Wednesday.
The long-serving Mr Leupen has been among the most vocal in tipping the end of the resources boom and increasingly shifted the group's focus to the more stable income stream of property management and maintenance services.
In its announcement, UGL provided further signs that it would go ahead with the demerger of its global property business, DTZ, from the rest of the group.
"The board has noted that a demerger appears more likely than other options to optimise value for UGL shareholders," it said.
UGL said its property business provided a bright spot and was expected to record its 11th straight year of earnings growth, and would come close to accounting for half the group's earnings in the next few years.
UGL will provide an update on a demerger decision by its full-year results on August 12.