Engineering firm UGL says the strong Australian dollar has been a drag on earnings even though it managed to lift profits because of the mining boom.
The lift was the 10th consecutive financial year UGL had posted a profit increase.
It expects 2011/12 to be another 12 months of growth but declined to offer specific guidance in light of the recent global financial turmoil.
Net profit rose to 9.7 per cent $158.51 million from $144.55 million on the back of its work with resources companies feeding Asian-driven demand for iron ore, coal, and natural gas.
Chief executive Richard Leupen said on Monday that he estimated that the strong Australian dollar had cut net profit by $3 million and two “problem” contracts in the resources sector had also reduced profits.
They included iron ore project work for BHP Billiton in the Pilbara and the Pluto LNG project that had “productivity issues” but UGL says have been resolved.
“Australia is definitely the lucky country, we’re out of step with everyone else it seems in this country with iron ore, coal, and LNG and the Asian-driven demand for those products and we’re very well placed and fortunate to have them,” Mr Leupen said.
A final dividend of 38 cents per share fully franked was declared.
Net profit was at the low end of analysts’ expectations of a 10 to 15 per cent rise.
“We all hoped for more but I think the market’s softening … if not for the Aussie dollar being $US1.10 we might have been up 11-12 per cent so we weren’t far off,” Mr Leupen told reporters.
UGL shares fell 23 cents, or 1.92 per cent, to $12.26 on Monday.
City Index chief market analyst Peter Esho said there was no positive surprise on the upside with UGL and that it need to obtain new orders quickly to justify market estimates for its earnings growth this year.
“UGL’s order book going into 2012 seems flat on face value and with market estimates of around 12-13 per cent forward earnings growth, management needs to prove the pipeline will improve quite quickly for those estimates to be achieved,” he said.
However, Mr Leupen said the company’s order book was at $8.2 billion and a record high $7.7 billion of weighted and qualified opportunities in the pipeline.
“We’re trading as good as we’ve ever traded, we’ve seen a dramatic improvement in US corporate real estate in the last two years,” he said.
UGL has four businesses including infrastructure, rail, resources and outsourcing services, with the resources boom a major contributor to the first three.
Its biggest project is a $1.5 billion joint venture managing Melbourne’s metropolitan train fleet.
Difficulties with that BHP and Pluto contract reduced resources operating margins from 7-9 per cent to less than five per cent in the first half but margins had returned to 7.5 per cent, Mr Leupen said.
