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Emeco plunges on profit warning

The West Australian
November 9, 2012

Shares in Emeco have plunged after the mining equipment company issued a first half profit downgrade, citing lower mining activity in Australia, contract deferrals and competitive price pressures.

Emeco lowered its first half profit expectations from $29.2 million to within a range between $23 million and $26 million.

Emeco managing director and chief executive Keith Gordon said while the company was seeing some utilisation challenges in Australia as a result of lower commodity prices and subdued mining activity, strong trading conditions in Canada and Chile, together with a solid customer base in the Indonesian business, was expected to help offset some of the softness.

Global fleet utilisation fell from 76 per cent in August to 72 per cent in October. In Australia, the company's utilisation rate was now 66 per cent.

The company said lower commodity prices had forced some of its customers to defer mine expansion plans, not renew contracts or seek to renegotiate the pricing for future contracts.

"The competitive nature of the Australian equipment market, along with some reductions in production volumes and deferral of mine expansions, is leading to competitive pricing on new and re-tendered contracts," the company said in a statement.

"Emeco will seek to remain competitive in these situations, whilst maintaining a disciplined approach to achieving our return targets."

The company had moved to cut capital expenditure for the year from $120 million to $80 million.

"Collectively, the offshore businesses are expected to deliver higher earnings in the second half, however, limited visibility in the Australian business makes the provision of full year guidance difficult at this stage," Emeco said.

"The company is aiming to deliver a step up in group earnings in the second half, although this is contingent upon securing new opportunities in the Australian market.

"The company will continue to pursue business development opportunities across its various markets, and remain focused on managing its cost base and capital expenditure during this volatile period."

Emeco shares fell 10.5 cents, or 16.94 per cent, to close at 51.5 cents.