UGL slashes over 1000 jobs

Mining services company UGL has announced over 1000 jobs will be cut after its earnings guidance was yesterday downgraded.

The company blamed the first half net profit slump of about 30 per cent on project delays and cancellations.

UGL chief executive Richard Leupen said unstable commodity prices and a slowdown in the resources sector will see the company spend $40 million on restructuring costs over the full year, The Australian reported.

In an effort to reduce overheads, Leupen confirmed more than 1000 positions would go globally, 700 from Australian operations.

"We had to make some big changes in the company to deal with what we see in the markets ahead," Leupen said yesterday.

''Since last time [six months ago] we've stood here and said we're worried about the resources sector, we really have been flat out in restructuring the company to deal with it.''

Leupen said he did not expect resources markets to ''nosedive'', but the resources cycle was inevitably on the way down from its peak, The Age reported.

In order to build a sustainable and profitable company Leupen said it was necessary to diversify UGL’s operations.

''We'd rather have a slower growth rate than have a $500 million write-off,'' he said.

"All the major miners are coming out and saying the same thing: they're suspending capital programs and they are focused on costs. The LNG builders are concerned about the high Australian dollar . . . and are putting question marks over future expansion."

UGL's underlying net profit after tax for the first six months fell by 29 per cent from last year dropping $21.2m from $72.2m to $51m.

The resources slowdown resulted in sharp declines in the company’s engineering and maintenance divisions.

UGL’s property and rail divisions both posted strong results, despite this the full-year guidance for underlying net profit was reduced from $168m to a range of $150m-$160m.

Leupen said unstable commodity prices in the end were the deciding factor.

"I don't expect to see a lot of new projects or new investments or an improving circumstance in those sectors until we see a recovery in commodity prices, but a recovery can be quite swift."

Engineering revenue fell 34 per cent as a number of key projects, including Woodside's Pluto project, concluded.

"With the conditions in the market out there we haven't been able to replace them," Leupen said.

"But we are back trading at slightly higher levels and we're bidding a lot."

Previously pinned as UGL’s growth area, its operations and maintenance arm was hit by a 20 per cent revenue slump, falling to $261.1m, again fluctuating commodity prices which resulted in miners cutting spending was blamed.

"We had a major contract with Fortescue deferred indefinitely — it was a big part of our earnings — it was (nearly) 25 per cent of it," Leupen said.

The Australian reported that analysts were disappointed with the numbers.

"Overall, a disappointing result driven by weaker than expected revenue (and) cashflow very poor," Macquarie analyst John Purtell said.