Perth-based marine services contractor Marine & Civil's slide into administration and a string of profit warnings by local resources contractors in recent weeks have highlighted the uneven flow of benefits from boom conditions in the state’s eco
Perth-based marine services contractor Marine & Civil's slide into administration and a string of profit warnings by local resources contractors in recent weeks have highlighted the uneven flow of benefits from boom conditions in the state’s economy.
They also coincide with new research showing a sharp rise in the number of company failures despite the rapidly improving economic outlook as the surging resources sector gathers speed.
Canning Vale-based Marine & Civil called in administrators last week after incurring losses on the Gorgon gas project on Barrow Island, which had resulted in “serious short-term cash flow issues”.
The losses are believed to relate to one of two contracts undertaken by the company on Barrow Island – one a subcontract to develop the WAPET Landing facility, and the second a joint venture with South Africa’s Murray & Roberts to develop a wharf-loading facility.
Coincidentally, Murray & Roberts subsidiary Clough last month warned its earnings in the current half-year were expected to be significantly down on the result for the second half of the 2010 financial year, and that it expected full-year earnings would be down 20 to 25 per cent on 2009-10.
Clough is also a major contractor on the Gorgon project, which has been the subject of repeated speculation about major delays and cost overruns. Nonetheless, operator Chevron maintains it is on track to meet its 2014 completion target.
Just days after M&C collapsed, fellow Western Australian resources contractor VDM Group said profits this year were expected to total only $10 million, well down on last year’s $16.7 million result due to an unexpected lag in the award of new work in the resources sector.
VDM blamed the lag on ongoing financial and political uncertainty, most notably concerns related to proposed mining taxes.
On the upside, VDM said that the outlook remained strong with the company tendering for work worth almost $3 billion for the next two years.
The warning came just weeks after VDM was forced to launch a winding up action in the WA Supreme Court against the Australian arm of one of China’s most powerful companies, engineering giant MCC, over non-payments at the $5.2 billion Sino Iron magnetite mine at Cape Preston in the Pilbara.
VDM is just one of a string of contractors to hit trouble at the project, with Austrian controlled electrical contractor AE&E sacked by Citic Pacific over its alleged failure to meet its “material obligations” in relation to construction of the mine’s 450-megawatt power station.
Major contractors Macmahon Holdings and Leighton Holdings have also announced profit warnings due to problems at major WA resources contracts, in part related to rising contractor costs as labour and materials shortages have resurfaced with a vengeance.
The warnings coincide with research just released by Dun & Bradstreet, which found that company failures were 73 per cent higher in the September quarter than pre-crash despite the strengthening local economy and showed that growth periods after a downturn were a period of great risk for Australian companies.
“This is due to a period of negative cash flow resulting from new orders and associated rising costs but delayed customer payments,” Dun & Bradstreet said.
Critically, it noted that firms were taking an average of 53 days to settle trade accounts, one day longer than in 2009 and two days longer than in 2007.
“The research is a clear sign that credit and cash flow management must remain a high priority for Australian executives despite the strength of the domestic economy.”
