Engineering and construction giant WorleyParsons says trading conditions in the first quarter have remained challenging, despite a rebound in the prices of some commodities, with revenue continuing to be under pressure.
The company will rely on its ongoing cost reduction program to show any improvement in its bottom line, with underlying earnings expected to be weighted to the second half of the financial year, its chief executive told shareholders on Tuesday.
Some commodities have seen a partial recovery in prices in recent months. Benchmark coal prices have doubled since June, oil prices have rebounded more than two thirds from their decade low touched in January, while iron ore has largely stayed above $US50 a tonne for most of 2016.
WorleyParsons, however, has not seen any impact on its order book yet.
“What matters to us is not oil prices, its the activity levels in the industry,” chief executive Andrew Wood told the company’s annual general meeting in Sydney.
“Our customers generally take a longer term view of their expectation of prices. What is important for us is the perception of where the medium-term or longer-term picture stands and how it impacts the balance sheets and cash flows of our customers.”
The engineering services company has been under pressure for the past two years amid a prolonged downturn in commodities markets that provide the bulk of its business.
Despite slashing expenditure, closing offices and cutting jobs, it reported an 11 per cent drop in revenue and a 37 per cent slide in underlying profit in FY16.
The performance forced it to suspend dividends last financial year.
The company in August said it would expand its cost cutting program to $350 million, from the previous target of $300 million.
Mr Wood said WorleyParsons’ priority for the current financial year is to improve its position in providing professional services to the hydrocarbons, heavy oil, and oil sands sectors.
He said the company is looking to expand in the sub-sectors of chemicals and new energy, and in particular sees opportunities in Saudi Arabia, as well as near term opportunities in investments related to China’s One Belt One Road regional development plan.
“We know unless investment increases from where it is in the market today to a higher level, the world’s needs for resources and energy will not be satisfied. The activity levels will come back, but when exactly, I can’t say,” Mr Wood said.