Profit slump sees UGL change focus

GLOBAL contractor UGL is shifting its focus away from the waning resources boom after its first-half net profit slumped by 53 per cent, says chief executive Richard Leupen.

Mr Leupen has long been wary of hitching UGL's wagon to the whims of the volatile resources cycle, preferring the more modest but steadier profit margins offered by long-term maintenance, outsourcing and property management contracts.

But he said the company was accelerating the strategic shift in what he described as the "biggest change" in his 13 years as UGL's chief executive. "This now is a structural repositioning of markets, I think.

"Since last time [six months ago] we've stood here and said we're worried about the resources sector, we really have been flat out in restructuring the company to deal with it."

UGL is spending $40 million on the restructure, which includes a reduction of 700 staff in its resources division. Mr Leupen said he did not expect resources markets to "nosedive", but the resources cycle was inevitably on the way down from its peak. And after a decade building an engineering contracting firm to service the resources boom, it was necessary to continue to diversify.

"We'd rather have a slower growth rate than have a $500 million write-off," he said.

Mr Leupen has been particularly bullish about what he describes as a "mega-trend" towards the global outsourcing of property maintenance and management services, which he is growing through last year's acquisition of DTZ.

UGL made a net profit of $26 million in the six months to December 31, down from $55.4 million in the previous corresponding period.

Earnings in its engineering business fell 45 per cent to $47.1 million in the half-year, due to cost overruns on large projects including the Pluto LNG project in Western Australia. Operations and maintenance earnings fell 34 per cent to $12.5 million, also due to projects being scaled down or cancelled.

But the declines were partially offset by UGL's property division, which reported a 33 per cent increase in earnings to $45.8 million, riding the wave of recovery in the US property market and strong growth in Asia.

UGL warned that soft commodity prices would continue to cause deferrals of major resources and infrastructure projects for the rest of the year.

"We're hearing almost all the major corporates talking about being more cautious about their capital development programs," Mr Leupen said.

UGL provided full-year guidance for underlying net profit to come in at between $150 million and $160 million, falling short of analyst expectations.

Shares fell 60¢, or 5.5 per cent, to $10.30 on Wednesday. UGL declared a 50 per cent franked interim dividend of 34¢, payable on March 27.