The downturn in commodity markets has prompted Nomad Buildings Solutions to cut its earnings forecast for the 2009 financial year as its modular division comes under pressure.
The downturn in commodity markets has prompted Nomad Buildings Solutions to cut its earnings forecast for the 2009 financial year as its modular division comes under pressure.
In an operational update to the market, the South Perth-based company said it is now forecasting a full year net profit of between $26 million and $27 million with revenue of some $480 million.
In the company's 2008 financial year report, the builder had forecast net profit to be around $33 million and revenue to be some $436 million.
"The first half of 2009 FY is expected to result in profit after tax of around $9 million, largely due to the margin deterioration in the Nomad Modular Building projects," Nomad said today.
The revised earnings forecast follow a review of the company's five businesses, with the outlook for Rapley Wilkinson, Lifestyle Living, McGrath Homes and Halley Homes remaining positive.
However, due to Nomad Modular Building's exposure to the resource sector, margins on some projects have continued to deteriorate, particularly on two turnkey projects which are mostly completed.
Nomad said the deterioration is due to a range of cost pressures and operational inefficiencies, largely driven by the rapid growth of the modular division.
"As a result of this process we have made the decision, in line with our strategic plans, to have all installation activities now undertaken by Rapley Wilkinson, our construction company, which has long standing remote area experience," Nomad said.
"This then allows Nomad Modular Building to focus on the improvement of production efficiencies."
It added that the company's exposure to the resource sector is now less than 30 per cent of revenue for the 2009 financial year.
"The Board will continue to monitor market conditions to ensure the Company is positioned to react to any further deterioration in demand but also structure the Company to be in a position to take advantage when economic conditions improve," Nomad said.
Shares in Nomad dropped two cents to 34c at 11:30 AEDT.
The announcement is below:
Given the current turmoil being experienced in global financial markets and the potential impact this may have on the
markets in which your Company operates, the Company has undertaken an in depth review on all its businesses, including their existing projects, and on the outlook for the remainder of the 2009 FY.
The Company's five businesses are Nomad Modular Building, Rapley Wilkinson, Lifestyle Living, McGrath Homes and Halley Homes. The outlook for all of these businesses, excluding Nomad Modular Building, remains positive and all are performing in line with the Company's expectations. The outlook for Nomad Modular Building, given its strong presence in the resources sector, is under some pressure due to the downturn in commodity markets and associated demand.
At the October Annual General Meeting some 7 weeks ago, we reported that Nomad Modular Building had suffered deterioration in margin on some projects. Following an in depth review, and in particular on two turnkey projects, this
deterioration has continued due to a range of cost pressures and operational inefficiencies, largely driven by the rapid growth in Nomad Modular Building. These two projects are mostly completed and projects that are still underway have undergone the same comprehensive review.
As a result of this process we have made the decision, in line with our strategic plans, to have all installation activities now undertaken by Rapley Wilkinson, our construction company, which has long standing remote area experience. This then allows Nomad Modular Building to focus on the improvement of production efficiencies
With the reduced margin in Nomad Modular Building, the Company is now forecasting full year profit after tax of between $26million and $27million with revenue of approximately $480million. The first half of 2009 FY is expected to result in profit after tax of around $9 million, largely due to the margin deterioration in the Nomad Modular Building projects as mentioned previously. To date the Company has approximately $410million of invoiced and work in hand, plus approximately $20million of letters of intent for the 2009 FY.
The net result of the Company's review, including allowing full provisions associated with completion and other outstanding issues, amounted to a reduction of profit after tax of approximately $9 million in the first half. All current projects leading into the second half have been reviewed in detail and any appropriate allowances have been recognised.
GEARING RATIO
Gearing, net debt to equity, is forecast to be 30% at 31 December 2008 and around 25% by 30 June 2009. This includes financing the purchase of additional land for McGrath Homes for consolidation of its operating facilities valued at approximately $6 million and the construction of a workers facility for Rapley Wilkinson's workforce in Karratha, also valued at around $6 million. Both of these commitments were made during the last six months.
STRATEGY
The Company has actively pursued market opportunities and acquisitions that enhance and diversify the Company's
markets and these strategies have seen the Company position itself well to react to the current downturn, primarily in the resources sector. The Company's exposure to the resources sector with respect to the supply and installation of major new camps and villages is now less than 30% of revenue for the2009 FY. The Company's pursuit of regional housing and infrastructure projects continues to grow. The Company is committed to the development of additional market sectors, increasing its presence in existing smaller markets and continuing to address resources based opportunities when they occur.
CAPITAL MANAGEMENT
The Company has placed on hold any discretionary expenditure, including capital expenditure, and will continue to focus on cash management to allow us the opportunity to be in a position to either grow the business or target a more conservative debt gearing ratio.
DIVIDEND POLICY
As part of the Capital Management strategy the Board will, at the appropriate time, consider the broader financial markets, the impact on its businesses and the internal requirements for cash in the determination of dividends. It is the Board's intention to continue to pay dividends to a maximum of 50% of the Company's earnings, subject to the requirements at the time with respect to growth or building a stronger balance sheet.
OUTLOOK
The Board will continue to monitor market conditions to ensure the Company is positioned to react to any further deterioration in demand but also structure the Company to be in a position to take advantage when economic conditions improve.
The Board is of the view that the Company's current share price does not reflect the true or fair underlying value, and with shares currently trading at a PE of around 2 times, significantly undervalues the Company.
