The Wagners Holding Company Ltd (ASX: WGN) share price crashed 30% this morning as half-year profits dived and the full-year outlook was downgraded. The construction materials company reported a net loss for H1FY20 on thinner margins and increased costs.
Wagners' 1H20 results
Wagners reported total revenue of $122.3 million, down from $123.8 million in 1H19. HY20 sales declined compared to HY19 due to lower volumes in cement attributable to the Boral dispute, with offtake recommenced in late October 2019. While there was no major project revenue, concrete plants, quarries and transport revenue increased, albeit at a lower margin.
Earnings before interest and tax (EBIT) fell to $2.5 million from $16.1 million in the prior corresponding period (pcp). Wagners attributed this to higher operating costs, with repairs and maintenance costs rising to $12.3 million from $8.9 million due to increased utilisation of transport and quarry assets. Subcontractor and services costs also rose, up to $6.3 million from $3.7 million, with increased costs incurred to meet short term contracts in transport and quarry businesses.
Earnings before interest, tax, depreciation, and amortisation (EBITDA) halved compared to the pcp, down to $11.3 million from $22.4 million. Pricing pressure in the South East Queensland cement and concrete markets significantly impacted margins. Earnings were also impacted by increased costs associated with litigation and the establishment of the concrete plant roll out.
A net loss of $1.2 million was reported for the period, down from $6.9 million of profits in 1H19.
Cash flow and working capital
Cash flow from operations has been impacted by lower EBITDA and a negative working capital movement. The working capital position was negatively impacted by higher debtors as the result of the award of new contracts and sale of concrete plants, which have since been received.
Capital expenditure (capex) was reduced during the half with major spends in concrete plant expansion and stay-in-business capex for quarries and transport.
Net debt at the end of the half was $70.4 million, down from $90.3 million at 31 December 2018. Debt was reduced thanks to Wagners' $40 million rights issue, although this was partially offset by capital spend during the year. Wagners reports significant headroom on term debt and equipment finance facilities.
Outlook
Wagners has decreased its full-year EBIT outlook to a range of $12.5 million to $17.5 million. Reduced earnings expectations are due to continued challenges in the South East Queensland construction materials business and uncertainty of the timing of commencement of major projects.
No allowance has been made for the outcome of litigation Wagner is currently involved in.
