Australia: Clough Profit Dives

Engineering and construction company Clough Limited announced a result in line with previous guidance with a 25% increase in total revenue to $1bn but a reduction in underlying earnings to $47.2m, due to a loss in the Marine Construction division as a result of soft market conditions.

On 8 August the Company announced that it had entered into an agreement to sell the Marine Construction division to SapuraCrest Petroleum for a cash consideration of $127m. The transaction is expected to complete towards the end of Q4 2011. At 30 June 2011 the Marine Construction division was classified as a discontinued operation and underlying earnings from continuing operations was $54.7m and NPAT from continuing operations $49.6m.

The board have declared a dividend of 2.2c per share, unchanged from 2010/11.

Commenting on the result, Chief Executive Officer, John Smith, said “Clough has had a year of excellent operational performance across a range of world class projects. Notably our people in Papua New Guinea working for Exxon completed seven million man-hours without a lost time injury, demonstrating that excellence can be achieved in the most difficult of conditions.

Our Marine Construction team have performed admirably in very difficult market conditions and the sale of the division to SapuraCrest will provide increased opportunities for them and the business. SapuraCrest have better efficiencies of scale and access to markets across a broader geographic footprint. We wish them every success.

The proceeds from the sale will leave the company debt free with significant net cash, equipped for growth. You will see an increased emphasis from Clough on the EPC opportunities in Australia, not only in gas but on minerals projects.

Whilst the overall result was down our Capital Projects division saw a significant increase in both revenue and profit. Our investment in core skills is paying off with robust, reliable operational performance. For the 2011/12 financial year the division already has confirmed work under contract in excess of last year’s revenue.

Since year end we have added a number of new contracts to an already healthy order book and our tender pipeline is at record levels with a number of high value opportunities at an advanced stage of pursuit.

We are underway with new contracts for BHP on Macedon, INPEX on Ichthys, CSBP (Wesfarmers) on NAAN3 and pleasingly, through the Clough Forge JV, for Hancock Prospecting on the Roy Hill Development.

The project management services contract for the upstream facilities on Ichthys is high quality work which will extend through the engineering, construction and commissioning phases of this leading edge gas to LNG project.

The Roy Hill award is the first for the recently established Clough Forge JV and whilst expenditure is initially limited to project scoping until the final investment decision is taken, the opportunity is there to move to a full construction contract.

Our start up initiative, Clough Seam Gas, is now bearing fruit having secured front end work with BG and Arrow, and is tendering extensively for the construction phases of several of the Queensland CSG projects.

We expect to have confirmation shortly of a 2 year extension for our Clough AMEC JV contract with ConocoPhillips, which together with the ongoing work for Chevron, Woodside, Maersk and Oil Search, will provide a good base load for this business. The opportunity for the division is significant with massive new facilities planned to come into operation at Pluto, Gorgon, Wheatstone, PNG and in Queensland for each of the CSG operators.

As I head towards a handover to my successor Kevin Gallagher which is now confirmed as the end of the calendar year, I am proud of the turnaround in Clough’s fortunes. The balance sheet and order book have never been in better shape. We are fortunate, in a troubled world economy, to have excellent market opportunities and by continuing to focus on enhancing the core Engineering, Procurement and Construction skills of our people, the future is bright.”

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Source: Clough, August 26, 2011;