The revised net profit after tax is expected to be $90-96 million for the financial year to June 30.
This marked a significant 14.3-19.6% drop from the previous guidance, issued less than two months ago, when the company said it would post a net profit of at least $112 million.
The change included $16.2 million of after-tax significant item losses whereas previous guidance had estimated the costs at $9.3 million, mostly due to higher foreign exchange losses and a fair value adjustment on the Best Tractor Parts equipment hire business.
Patersons Securities head of research Rob Brierley downgraded the valuation on Ausdrill from $3.19 per share to $2.55 per share.
“Our forecasts have been adjusted to match updated guidance and we have taken a conservative view on fiscal year 2014 and beyond, reflecting our view that the slowdown in mining sector activity is not temporary as it reflects a cyclical change,” he said.
Ausdrill said it had used redundancies and natural attrition to reduce the number of Australian employees, excluding the BTP division, by 13.1%, or 321 positions, from July through February as part of its efforts to cut costs.
While the group’s core business had largely continued to perform as expected, the company said profits would be impacted by the general slowdown in activity in the Australian mining sector that began in September last year and has not recovered as expected.
Exploration drilling accounted for roughly 10% of Ausdrill’s revenue in the half year to December 2012, but since Christmas there has been a notable slowdown, which shows no signs of recovery in the near term, the company said.
Equipment hire, which contributed 8% of the group’s revenue for the six months through December 31, has also seen a slowdown.
“The fall in commodity prices has generally resulted in the deferral of new projects and the scaling back of overall physical material movements on some production sites,” Ausdrill said.
“This has resulted in surplus mining equipment in the sector, with trading conditions in the equipment rental market remaining below expected levels.”
Ausdrill shares shed 7.5% to $1.96.
