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Macmahon flags profit downgrade
Macmahon flags profit downgrade

Macmahon Holdings’ inconsistent construction business will come under scrutiny again as the contractor moves to downgrade a bullish profit forecast made just a month ago.

Macmahon placed its shares in a trading halt yesterday, at 53¢, ahead of changing the earnings guidance because of a “deteriorating financial performance” in construction.

The company also cited increased uncertainty about the outlook for construction work, given recent market volatility in the mining sector.

Upon releasing full-year results last month, managing director Nick Bowen tipped a 20 per cent improvement in net profit for 2012-13, which translates to a target of about $67 million. Work in hand for the financial year stood at $1.4 billion.

Just last week, Mr Bowen said Macmahon had been largely unaffected by big miners taking an axe to expansion plans and still expected profit growth.

“We haven’t seen anything impact directly on us yet but we do expect that conditions are going to be a bit tighter going forward and less new work,” he told WestBusiness.

Investors in recent weeks have slashed Macmahon’s share price along with its peers in the mining services sector as the iron ore price slumped.

Doubts about Macmahon’s construction division re-emerged earlier in the year when delays in delivering a $330 million rail project for Fortescue’s Solomon expansion led to some of the work being handed to rival contractor NRW Holdings in June.

Mr Bowen said Macmahon lost about $10 million to $20 million in revenue as result, an outcome which he had been consolidated in the 2011-12 results.

A Fortescue spokesman said Macmahon was completing its scope of work of the Solomon spur rail formation on time and on budget.

However, speculation in broking circles yesterday included the possibility of the debt-pressured Fortescue making a fresh claim on the project.

Mr Bowen this month appointed Mark Hamilton to the newly created position of chief operating officer, construction, bringing the management structure into line with the mining division.

In doing so, he did away with the western and eastern division heads he had introduced in the aftermath of a $49 million write-down of a BHP rail project that wiped out Macmahon’s 2010-11 profit.

“It’s about having a single manager responsible for all the construction business. It enable that group as a business to focus on whichever area they see as the best potential to grow,” Mr Bowen said.