article air agm

High Aussie Dollar Hits Emeco
November 19 2009 - Australasian Investment Review – (AIR)

Heavy equipment group, Emeco Holdings has revealed what appears to be a small earnings downgrade in guidance issued at yesterday's AGM in Sydney.
The about-to-leave CEO, Laurie Freedman told the meeting that while there were a number of positives and negatives, the company expects "these various factors to offset one another".

"In recent weeks we are observing the early stages of a surge in activity in our major markets which we expect to underpin a step change in second half earnings,' he said.

"Furthermore, our medium term outlook is positive as our major customers in key commodities across coking coal, iron ore, thermal coal, gold and oil sands return to historical production levels and recommence expansion projects.

"However, the appreciation of the AUD in recent months is expected to impact our full year NPAT by at least $2 million.

"As a result of the currency impact we now expect our full year earnings will be towards the lower end of the previous earnings guidance of $46 million to $53 million.

"With respect to the composition of our guidance, we expect approximately 70% of earnings to be generated in the second half."

Mr Freedman said the bulk of the company's earnings growth is expected to come from Australia, Indonesia and Canada over the next two years, primarily through organic growth of its larger mining fleet to meet the expected growth in commodity volumes.

"The significantly stronger second half earnings is underpinned by our newly acquired large trucks being 100% deployed by January 2010, recent contract wins for existing idle fleet and strong outlook for Emeco’s key commodity exposures in 2010.

"We anticipate providing further guidance at our half year results presentation in February 2010, where we will have further visibility."



The company's shares fell more than 3%, or 3 cents, to 87 cents after the AGM news was announced.

Mr Freedman is leaving after a decade in the job. He's being replaced by Keith Gordon, a senior executive from Wesfarmers.



In his speech, chairman Alec Brennan told the meeting that while the company's financial position remains strong, the challenge to improve its return on capital remains.
"Central to this primary objective, we have commenced downsizing the European business and we are undertaking a review of the USA business.

"The sharp downturn in these two markets resulted in one-off impairment and restructuring charges of $44.5 million in FY09.

"Although a disappointing result for the current year, we believe the action taken is prudent in the current circumstances."

Mr Freedman said that when the company provided FY10 earnings guidance to the market in August, there was significant uncertainty around the recovery.

"Our experience to date has been that the early part of the recovery has been slow and that the ultimate speed of recovery is still difficult to predict."

He said that with respect to the FY10 earnings outlook, there are a number of factors which are influencing earnings since the previous guidance in August. These include:

A flatter than expected utilisation profile in 1H10 in Western Australia, Queensland and Canada as customers have been slower to make decisions in the early part of the recovery;
Increased costs in 1H10 to prepare a significant amount of equipment for engagement in early 2H10;
Recovery in US coal market not expected until middle to late 2010 which will reduce earnings in our US business;
Continuation of a subdued market for the Australian Sales business throughout FY10.
Largely offsetting these downside risks are several upside factors which include a $95 million investment in the large truck fleet that was not previously contemplated in the earlier guidance which will generate incremental earnings in 2H10.
"As a result, we have recently committed to purchasing over thirty 190 tonne to 240 tonne trucks for a total investment of $95 million.

"All these assets will be deployed into coal, iron ore and oil sands in Australia and Canada to meet the strong demand in 2010.

"These acquisitions will result in debt peaking at around A$380 million in the short term, however this is well within our existing debt facilities.

"Importantly, earnings and cashflow from this equipment is expected to be generated immediately which will be used to reduce debt in 2010.

"Total gross capex for FY10 is now expected to be approximately $160 million, which comprises $55 million of sustaining capex and $105 million of growth capex, which primarily represents these large truck investments."