Shares of Cardno Limited (ASX: CDD) have fallen nearly 6% today after the business posted a deep loss for the 12 months ended 30 June 2015.
Cardno is an engineering contractor group which, like most others in the industry such as Bradken Limited (ASX: BKN) and Monadelphous Group Limited (ASX: MND), is experiencing severe headwinds as demand for their services plummets.
With commodities such as iron ore and oil tumbling in price, miners are increasingly taking their service roles in house to save costs, or else shelving projects altogether. This was certainly evident in today's results. Revenues rose 9% compared to last year to $1.43 billion largely thanks to full-year contributions from recent acquisitions, while earnings before interest, tax, depreciation and amortisation (EBITDA) fell almost 24% to $108.4 million.
The group's EBITDA margin also fell from 14.7% to 10.6% (meaning it gets to keep less from every dollar in revenue earned), as a result of a decline in organic revenue during the period.
Meanwhile, Cardno reported a net loss of $145.2 million (compared to a net profit of $78.1 million in the 2014 financial year) with net operating cash flows also declining 43% to $48.1 million.
Commenting on the results, Cardno's Chairman said: "Despite the external challenges, we are not satisfied with our results and are continuing to undertake significant action to improve overall business performance and profitability."
Aside from the poor earnings results, here are two other important things for investors to note from today's announcements.
Firstly, Cardno has launched legal action against the former owners of the Equadorian business Caminosca for breach of sale and purchase contract conditions. Cardno has written the asset down to fair value and it is now being held for sale. Including this impairment charge, earnings per share (EPS) were negative 88.3 cents per share, but when normalised, EPS were 30.6 cents per share 41% lower than the prior year.
Meanwhile, Cardno also reduced its dividend by 44% to 20 cents per share and announced that shares issued under its Dividend Reinvestment Plan (DRP) will be issued at a 2.5% discount. In doing this, shareholders are being encouraged to take up newly issued shares instead of accepting a cash payment which will allow the company to retain more cash from earnings.
Considering the headwinds facing the industry however, 'Foolish' investors would be wise to avoid Cardno altogether.
