Hellaby anticipates strong recovery when delayed oil contracts come on stream

Monday 22nd February 2016

Hellaby Holdings is picking a strong recovery in its oil and gas services segment when a series of delayed contracts come on stream.

The diversified investment company on Friday posted a 65 percent drop in first-half profit to $4.7 million, but says a pickup in the second half will result in a full-year profit broadly in line with last year's $23.4 million.

Chief executive Alan Clarke told BusinessDesk the 12-year low oil prices meant refineries have pushed out work to take advantage of fat margins, scheduling maintenance in the second half of the year.

"In the first half, the oil refineries basically said we're in a sweet spot at the moment, we need to keep on producing through this period - we're not going to slow down, we're going to defer the necessary maintenance,” Clarke said. “That meant the first half was postponed into the second half. At the moment we're gearing up to discharge what will be record months in March, April and May, as a whole lot of refineries pull the hammers back and hand over the plants to us.”

Hellaby’s oil and gas services segment posted a 91 percent slump in operating profit to $711,000 in the six months ended Dec. 31, as revenue fell 19 percent to $83 million, having previously warned sales in the division would be "well down" due to delays in several large contracts which are now scheduled for the second half of the year.

Clarke said Hellaby’s maintenance at refineries would mean they have to stop production, something they’re not keen on when they’re enjoying record margins.

"The pump price has not dropped to the same extent as the oil price, and it means a refinery, which sits between the raw cost of oil and the pump price, is making huge margins,” he said. “You've got to know what you're doing, and you've got to be able to do it in the shortest possible time, because every day of lost production is counted in the millions of dollars."

Clarke is more anxious about the resources division’s ability to service all the refineries at the same time to the quality they want. The company is bringing in about 1,000 people to discharge the work - "like mobilising an army" - where they would normally have 300 to 400.

Hellaby is also looking at other areas to expand its resource group.

"We're looking at all forms of energy and reticulation, we're looking at power stations, we're working in a number of areas where basically there are large plants that require clever, technical, engineering maintenance solutions, and the good news is we're very good at that," Clarke said.

Hellaby is looking to offload its struggling footwear division, and Clarke wants to narrow Hellaby’s focus and deepen its involvement its remaining investments in resources, equipment and automotive.

"We are not fashion retailers, we're engineers with short fat dirty fingers," Clarke said. "It will be divested at the appropriate time."

The shares last traded at $2.63, and have fallen 11 percent this year.

BusinessDesk.co.nz

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