21/04/2009 - 15:41

Essa revises down guidance, flags cuts

21/04/2009 - 15:41

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Minerals testing company Essa Australia has dramatically revised down its second half revenue and profit outlook, and anticipates that its full-year result will be around breakeven.

Essa revises down guidance, flags cuts

Minerals testing company Essa Australia has dramatically revised down its second half revenue and profit outlook, and anticipates that its full-year result will be around breakeven.

Essa said its second-half sales will fall by 40 per cent to $14 million while full-year sales are expected to drop by 23 per cent to $34 million.

It announced further reductions in staffing levels and cost cutting measures to combat the "challenging" economic environment.

 

 

The announcement is below:

 

 

Essa Australia Limited ("Essa" or the "Company") reported with the release of its results for the half year ended 31 December 2008 that the Company was experiencing difficult trading conditions and that costs associated with overhead and staff reductions had adversely impacted the financial performance of the Company. Essa also
noted it continued to monitor and evaluate its overall cost base going forward and would respond as required in
order to address the challenging economic environment.

The directors of Essa have now reviewed the performance of the Company for the January to March 2009
quarter and advise that trading conditions have continued to deteriorate to an extent which was not previously
foreseen. The global financial crisis has had an extraordinary cyclical effect on both capital expenditure and
consumables in the mining services sector. As a result, Essa's order intake declined by 50% during the March
2009 quarter compared with the same period in 2008. Consequently, the Directors expect sales for the second
half of the 2009 financial year to be approximately $14 million, representing a decrease of 40% compared with
the previous corresponding period. The expected full year sales of approximately $34 million represent a
decrease of 23% compared with sales of $43.6 million in the 2008 financial year.

A shift in sales mix due to severe declines in sales of wear parts and standard equipment has further pressured
the Company's gross margin. In response, Essa has taken additional measures to those previously announced to
address its overheads and cost base. These measures include:

- further reductions in staffing levels;

- placing staff onto a four day week;

- encouraging employees to take accrued annual and long service leave; and

- continued reduction of expenditure in all areas of the business.

Based on the trading factors noted above, together with the unanticipated second half costs associated with
implementing the additional profit improvement initiatives, Essa now expects net profit after tax for the full year
ended 30 June 2009 to be around breakeven (excluding any potential adjustment for goodwill impairment given
the present market conditions).

As noted in the previous half year profit announcement in February 2009, an amount of $3.2 million remains
outstanding from a client in relation to automation projects ($1.8 million as a trade receivable and $1.4 million as
work in progress). The receipt by the Company of this amount is subject to final negotiation on settlement with
the client and Essa meeting the remaining technical requirements in relation to the projects. Essa is continuing to
address these matters and to resolve the outstanding issues.

The current level of sales enquiries both in Australia and overseas is encouraging, although conversion to sales
is slow. The impact of the cost reduction measures should be favourable for the next financial year. Importantly,
the Company has preserved the future capacity and potential of its business by retaining key staff and customer
relationships. Essa's prudent approach to capital management and balance sheet preservation has positioned
the Company well to benefit from an expected return to more normal sales levels when economic confidence and
business conditions improve.


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