NRW Holdings’ shares tumble as contractor reports squeezed margin, labour pressures, Primero error
Daniel NewellThe West Australian
Thu, 17 August 2023 10:18AM
NRW says the sector is still suffering from a lack of skilled labour and higher costs. Credit: NRW Holdings
Shares in NRW Holdings have plunged more than 6 per cent after the mining contractor revealed “significant” inflationary pressures and a continuing tight skilled labour market were squeezing margins.
It also announced a $10.3 million accounting bungle related to two projects completed by its Primero resources engineering business in fiscal 2022.
NRW reported on Thursday it had met guidance with an 11.4 per cent jump in revenue to $2.7 billion. Earnings before interest, tax and amortisation rose 13.3 per cent to $166.3m.
Profit was $104.4m, up from $93.7m the previous year but statutory earnings dropped from $90.2m to $85.6m.
Managing director Jules Pemberton said the contractor had built on last financial year’s COVID recovery and its order book now stood at $5.9b, with $2.7b of work booked for this financial year.
But he said the sector was still suffering from a lack of skilled labour and higher costs.
“The group has contended with very challenging conditions across each of our key markets during the year,” Mr Pemberton said.
“These included significant disruption caused by La Nĩna weather patterns in Queensland, approval-driven factors delaying the award of a number of key projects, significant cost inflation and skilled labour pressures on construction projects, together with continued price competition for new work.
“Despite these significant challenges, the extensive diversification that is built into our business model has allowed NRW to respond to quickly to changing conditions by reallocating resources to maintain profitability.”
Mr Pemberton said Primero in particular had suffered “significant” pressure on fixed price contracts as a result of escalating costs and the availability of labour.
NRW also disclosed an error in Primero’s revenue recognition that affected the results of two projects completed in the 2022 financial year. It related to the overstatement of revenue and margin by $10.3m that will require Primero to restate financial statements for the year, but the adjustment would not be material to the group’s published results.
Shares in NRW were down 6.4 per cent at 10.15am to $2.56.
The company said it expected the civil engineering and construction market to remain buoyant “for the foreseeable future” in WA and also in Queensland, particularly ahead of the 2032 Brisbane Olympic Games.
It also said Primero was well-position to take advantage of the US Government’s Inflation Reduction Act and similar legislation in Canada to help fund projects that will establish the building blocks of their decarbonised economies.
NRW declared a final fully franked dividend of 8¢ share, taking the total dividend for the year to 16.5¢ — up 12 per cent from the previous year.
It has forecast revenue of more than $2.8b for this financial year and EBITA of between $175m and $185m.
“With the successful completion of FY23’s challenging contracts, an anticipated improvement in the operating environment and the migration to more balanced risk sharing contract structures in the current project portfolio, we expect to deliver far better performance across the group during FY24 and beyond, driven by a very strong demand for our services,” Mr Pemberton said.
NB
The ‘significant inflationary pressures’ were considered to be no longer an issue due to current and future contracts passing such costs on to project owners.
Ditto labour issues due to NRW employees seeking return work in preference to joining other less popular contractors … This loyalty was referrred to at least twice in the conference call
And as Daniel noted in the story text, there were only TWO fixed price contracts at Primero that caused the impact, and both Jules and CFO, Richard Simons were extremely reassuring that the error will never happen again over the course of the conference call.
There are a number of convincing reasons the company was confident about this including a new review system across all divisions of the company, new management at Primero bringing it more closely into NRW functionality, monthly meetings with division leaders, continual reassessing of early contract projections to make sure they were performing as predicted…
But I guess maybe NRW did better than Seven Group Holdings - SVW - which also released its’ results? (i have not looked yet)
You rock Jules and to be honest I once heard some rumours about former Primero management which makes me pleased you have brought it more strongly into the NRW model
(20min delay)