Transfield Services (ASX: TSE) recently announced a profit downgrade after wet weather affected its Easternwell business while it will also book a $16 million provision for a legacy contract.
Extreme weather events in WA, SA and QLD negatively affected operating conditions resulting in a $9 million negative impact, while the $16 million provision relates to extra costs incurred to meet changes in scope, delays in material supply and geotechnical problems associated with a project which is 85% complete.
TSE’s reported net profit (pre amortisation) for the year to 30 June 2012 (FY12) is now expected to come in at $105 million, down from the previous guidance of $130 million to $135 million.
The Easternwell business has proved problematic for TSE since its acquisition, an acquisition which was meant to provide exposure to higher value work within Australia’s iron ore, oil & gas and coal seam gas sectors.
Contractors such as TSE, tend to periodically report problems with projects which always tends to come as a nasty surprise to shareholders as the share price is sent spiraling downwards.
TSE has initiated a share buy back given the steep slide in its share price while its review and remediation of legacy contracts is now complete.
About Transfield Services: TSE provides operations, maintenance and construction services to the resources, energy, industrial, infrastructure, property and defence sectors. Listed on the ASX is May 2001, TSE delivers asset management services across all phases of the asset lifecycle, from concept and creation, with over 27,000 employees in 21 industries and 13 countries, including New Zealand. Its New Zealand clients include Transpower, Meridian Energy, Contact Energy, Wellington Electricity and the NZ Transport Agency.
Status: HOLD
TSE’s shares today traded at $2.06
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