Transfield gearing up to control debt as mining slows
The construction and maintenance group's share price is in free fall, diving to record lows last week after it lowered its profit guidance for the second time in six months.
This is the latest in a string of downgrades by companies that are exposed to mining services: the earnings and shareholder funds of UGL, WorleyParsons, Boart Longyear and others have evaporated recently.
Transfield CEO Graeme Hunt denies things have gone wrong for the company, but he admits the outlook for next year is not as rosy as it was a few months ago.
Transfield has made more than 100 staff redundant and cut its full-year profit guidance, before at least about $6 million in impairments, by almost a third to between $62 million and $65 million from a forecast of between $85 million and $90 million.
"It's important to understand that the slowdown in the mining sector is really about the slowdown in investment, it's not about the slowdown in production," Mr Hunt told ABC TV's Inside Business.
The industry would still hold up well beyond the next 10 to 15 years for those mining services companies exposed to the mine's life, and to that of oil and gas projects, rather than just building them, he said.
"You need to [remember] that there has been a huge investment, which needs to be operated and maintained, which is going to create jobs, create revenue and cash flows and profit flows for the companies that are involved," he said.
Transfield's gearing - the use of debt financing compared with shareholders' funds - is expected to be 45 per cent at June 30, up from 39 per cent at December 31.
It wants to lower its gearing to between 20 per cent and 30 per cent in the medium term.
Mining accounts for less than half of Transfield's business, meaning that its other infrastructure, property and hydrocarbon businesses are not performing well enough either. "We are seeing some slowing in some other sectors, particularly in the processing and manufacturing sectors, where we also do work," Mr Hunt said.
"We need to reduce our working capital and reduce our debt and we'll do that by the asset and business sales that we flagged following our strategic review in February, and by reducing our working capital and by better execution in our operations."
Frequently Asked Questions about this Article…
Transfield cut its full‑year profit guidance for the second time in six months amid a slowdown in mining‑sector investment. The company warned of about $6 million in impairments, made more than 100 staff redundant and trimmed expected profits to $62–$65 million (from a previous $85–$90 million forecast), which pushed the share price to record lows.
Graeme Hunt said the slowdown is driven by reduced mining investment rather than lower production. He argued the industry still has a strong long‑term runway — around 10–15 years — for companies exposed to the life of mines and oil and gas project operation and maintenance, and insisted Transfield's future remains bright despite a softer near‑term outlook.
Transfield's gearing (debt versus shareholders' funds) was expected to be about 45% at June 30, up from 39% at December 31. The company has a medium‑term target to lower gearing to between 20% and 30%.
The company is reducing working capital, making redundancies, and planning asset and business sales flagged after a strategic review in February. Management also expects to improve cash flow through better operational execution to lower debt levels.
Mining accounts for less than half of Transfield's business. The article notes that other areas — infrastructure, property and hydrocarbon businesses — are also underperforming, and Transfield is seeing slower activity in processing and manufacturing sectors where it operates.
The downgrade signals near‑term pressure from weaker mining investment and operational challenges, reflected in lower profit guidance and a falling share price. The company is taking steps to reduce debt and improve cash flow, but the article indicates the outlook for the next year is less rosy than a few months ago.
Transfield made more than 100 staff redundant and said it would take at least about $6 million in impairment charges as part of its profit downgrade and balance‑sheet repair efforts.
Transfield plans to use asset and business sales identified in its February strategic review, along with reduced working capital and improved operational execution, to lower debt. The article reports these steps as the company's stated approach but does not guarantee outcomes or specific timing.
Call 1300 880 160
Start a chat
Schedule a call
