UGL shares slump 12%

Group declines to pay interim dividend despite H1 lifting profit, revenue; flags FY NPAT at lower end of guidance.

Shares in UGL have slumped to their lowest point in 2014 despite the group lifting its first-half net profit and saying it will continue to focus on reducing gearing and plans to divest non-core property.

The group said it was facing subdued conditions across engineering markets and continued slowdown in capital investment in the resources and infrastructure sectors in the six months to December 2013.

Investors were unimpressed by the news, sending UGL shares 12.43% lower to $6.20 against a benchmark index rise of 0.38% at 1531 AEDT.

Earlier, UGL shares touched as low as $6.08, which is their weakest point in calendar 2014, and the lowest they have dipped since hitting $6.07 on December 12.

Net profit attributable to members lifted by 13.5% to $29.5 million in the half-year, compared with the prior corresponding period.

Revenue from ordinary activities rose by 5.6% to $1.99 billion in the half.

UGL's directors did not recommend paying an interim dividend, preferring to conserve cash to facilitate a separation of its engineering and property divisions.

The group said it expects underlying net profit after tax of around $120 million in full-year 2014, at the lower end of previous guidance, subject to a continued reasonable trading outlook.

UGL said its diversified business model compensated for the subdued conditions it faced, with continued growth in facilities management and expansion of the corporate real estate business.

The group incurred one-off costs of $17.7 million in a group-wide cost reduction program which it expects to improve future margins in softer domestic and international market conditions.

An extra $3.1 million was spent establishing the two independent engineering and DTZ property entities in preparation for the demerger, UGL said.

The group said it will evaluate unsolicited third party interest in the property business to determine whether the indicative proposals are in the best interests of shareholders.

Chief executive officer Richard Leupen said the group has a diverse base of recurring revenues and is exposed to global property services, with over half of group earnings now generated offshore, meaning it is responding well to the challenging domestic environment.

"UGL is also well placed to benefit from the emerging infrastructure pipeline in Australia, particularly in the power and transportation sectors," Mr Leupen said.

"The revenue performance of engineering in the half year period suggests that we remain on track to operate in full-year 2014 at similar revenue levels to full-year 2013."

In the property division, revenue increased by 18% to $1.08 billion in the half, boosted by increased activity in the United States corporate real estate market and growth in the north Asia and United Kingdom businesses.

UGL said global and multi-region mandates continue to build, with the business securing 25 new mandates at December 31, and the order book at $3.4 billion.

In the engineering division, revenue fell by one% to $1.15 billion, affected by cost-under recoveries due to the delay in new project awards, as well as margin compression from increased competition and the cost reduction focus of resources clients.

The rail operations continued to generate long-term revenue, UGL said.

The order book remains stable at $4.6 billion and the group continues to pursue tendering opportunities across the LNG, rail and transport sectors where they fit within its risk appetite and business capabilities.

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