Macmahon Holdings announces first loss in 10 years

Macmahon Holdings (ASX: MAH) announced its first loss in 10 years in 2013, as this mining services company rationalises its business to scale back to the new realities of the mining industry as a whole.

Full-year revenue was down 29.9% from $1.66 billion to $1.17 billion, but part of this change was from discontinued operations. In total, Macmahon saw a net loss after tax of $29.48, down from a profit of $56.05 million in 2012.

To meet the challenges of today’s market, its strategy involves divesting its construction arm, and focussing solely on mining services. By selling off its non-core assets to such companies as Leighton Holdings (ASX: LEI), as well as its rail assets, the company wants to focus on diversifying through geography, commodity and service delivery.

With the sale of those assets along with general redundancies and transfers, group employees has been reduced by roughly 1,300, down to a total of 3,495. Looking forward, without the construction and rail business continuing, it projects revenues of between $900 million and $1.2 billion for 2014.

The perceived risks in the near term are fewer new work opportunities, significant increase in competition, and scope reduction and contract deferrals of customers. The company was able to secure a new $1.8 billion, five-year contract for the Christmas Creek mining expansion — its largest ever contract — and is concurrently ramping up work on the Tropicana Gold project, worth $900 million over 10 years.

Macmahon sees opportunities in West Africa and Asia, where a different mix of commodities and economies will spread the risk, while waiting for the Australian market to turn around. One setback in its work at the Mongolia-based Tavan Tolgoi mining operation is that the coal is stagnant there due to the lower than projected prices received from Chinese customers. Thus, production has been scaled back to meet demand. Currently, 93% of Macmahon’s business is Australian based.

The company’s gross gearing is at 53.63%, so debt is not too burdensome, and was reduced through a $80.7 million equity raising this year. During this year, the number of outstanding shares increased by 70.8% from 738.6 million to 1.26 billion, so per share statistics like EPS and dividend per share will be reduced accordingly.

Share price is currently around $0.15, down from around $0.50 in July 2012. No final dividend was declared for the second half of 2013.

Foolish takeaway

Companies making hard decisions for the future cause near-term pain for shareholders, so most investors should wait and tune in later to see how the story progresses.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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