27/08/2009 - 00:00

Mixed news for engineers

27/08/2009 - 00:00


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THE global financial crisis had a marked impact on Western Australia's engineering contractors during the year as the slowdown forced resources companies to scale back and defer numerous new developments and expansions.

THE global financial crisis had a marked impact on Western Australia's engineering contractors during the year as the slowdown forced resources companies to scale back and defer numerous new developments and expansions.

Most pain was felt by those companies servicing the iron ore and nickel sectors, which were hardest hit by the slowdown.

Nonetheless, there were winners in the sector.

Engineering and construction contractor Decmil Group reaped the benefit of its 30-year presence in the Pilbara and close ties to major producers such as Rio Tinto and Chevron to finish in the top-10 performers for the year with a TSR of 218 per cent.

The gain reflected the company's bounce back since jettisoning the Paladio name and focusing its business around the Decmil division established in the 1970s by the father of current chief executive, Scott Criddle.

The company has trebled its market worth and order book during the past two years, and has just secured its biggest ever contract - a $170 million deal to build the construction village for the $50 billion Chevron-led Gorgon LNG project on Barrow Island.

Decmil had previously completed a $115 million contract to build the construction workers village at Woodside's Pluto LNG project near Karratha, and has just added a $100 million contract to build an 800-bed worker village for BHP Billiton Iron Ore in Port Hedland.

The state's accelerating LNG boom has also paid dividends for a number of other local engineering groups, such as Mermaid Marine and Neptune Marine Services.

Mermaid, which provides offshore rig and vessel support services from its base in Dampier, achieved a strong TSR of 21.5 per cent for the year, while newer competitor Neptune delivered a TSR of 10.2 per cent.

Though Applecross-based engineering group Monadelphous posted a negative TSR of 2.8 per cent for the year, it was still the ninth best performance by WA's 30 largest companies in 2008-09.

Monadelphous has traditionally focused on the mining and minerals industries, particularly the iron ore sector, which helped it attain a 12 per cent lift in full year earnings to $74.2 million despite the slowdown.

But it has also deliberately targeted the oil and gas sector to great effect in recent times, winning $250 million in oil and gas related contracts, including a landmark $170 million contract to work on the Pluto LNG project.

Established oil and gas contractor Clough has also been a big winner from the LNG boom, even though it has not yet been reflected in returns to shareholders.

The 90-year-old Perth icon just dipped into negative territory with a TSR of minus 1.9 per cent. But it has unquestionably rebounded from its perilous state five years ago to deliver a 74 per cent increase in underlying pre-tax profits to $56 million for the year.

The bounce-back reflects a narrowed focus on its core business of providing engineering, procurement and construction services to the oil and gas sector.

Clough managing director John Smith told WA Business News the company's strong local knowledge and established presence should help it win a substantial share of upcoming LNG related work.

"There is strong international competition ... but we've been in WA for 90 years, we know how to work here and understand the local environment, so we are as good a chance as anybody to pick up a fair proportion of that work," he said.

Clough has already snared significant LNG work, with jetty construction and front-end engineering contracts for the Pluto and Gorgon projects respectively.

It is also working on ExxonMobil's giant Papua New Guinea LNG development and is targeting the slew of onshore LNG developments planned in Queensland.

Mr Smith said Clough also expected to take advantage of its newfound strength to grow through acquisition, particularly by way of consolidating local niche players in the sector.

Clough made its first move earlier this week with a deal to buy Houston-based subsea engineering specialist Ocean Flow International for an undisclosed sum.

Mr Smith said Clough had significant capacity for acquisitions with over $140 million in cash.

Its paper is also strong, with the company's share price trebling to levels above 90 cents since March.


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