Forge bids hurt us: SCEE
Aggressive and unrealistic bidding on projects by the collapsed Forge Group contributed to plunging margins for contractors, according to the boss of a rival engineering company.
Southern Cross Electrical Engineering managing director Simon High made the comment after investors knocked the contractor's share price to a six-year low in response to a drastic profit downgrade.
Forge Group had a $1.5 billion order book when it went under in February with at least $800 million in debts.
The collapse was caused by project blowouts.
"Forge significantly underbid in my opinion on both scope and on margin," Mr High said. "They bid very aggressively and I would say probably unrealistically aggressively."
Mr High said Forge was not alone in an environment where contracts were getting smaller and bidding more competitive.
SCEE had had to accept lower margins to contest bids.
"There are a lot looking at maintaining capacity in market which is in transition from capex to opex," he said.
"Nobody forces us to take the contract. But you've got to take the view, is it better to retain your workforce, retain capacity, capability and bid aggressively, which we've done."
SCEE is tipping a net profit of $7 million to $10 million, sharply lower than the previous year's $17 million. Broker forecasts had been in the $12 million to $14 million range.
The comparison between second halves is more stark. SCEE is expecting a net profit as low as $800,000 in this six-month period, compared with $13 million a year earlier.
Its share price fell 17¢, or 23 per cent, yesterday to 57¢, its lowest mark since 2008.
While revenue had not fallen considerably, SCEE's gross margins were expected to fall from 24 per cent in the first half to 15 per cent.
