Boom 2013 results "disappointing"


Boom Logistics blames aggressive cost cutting in the resources sector for its $2.5 million loss, targets expansion in LNG, wind farms and utilities

Boom 2013 results "disappointing"
Boom 2013 results "disappointing"

By Anna Game-Lopata | September 23, 2013

Boom Logistics Managing Director Brenden Mitchell has blamed aggressive cost cutting in the resources sector and labour costs for the company's $2.5 million loss.

In
the company's Annual Report,
Mitchell says extreme pressure on even the lowest cost commodity producers, and in turn their suppliers has also impacted Boom’s maintenance activities to a degree the company did not expect.

Until now, he says, the company had considered this aspect of the business both a mainstay and safety net’ in volatile times.

"This combined with a severe contraction in infrastructure spending on the east coast resulted in a significant downturn in revenue after the first quarter of the 2013 financial year," he says.

Mitchell points the finger squarely at Boom’s Enterprise Bargaining Agreement (EBA) in the north west of Western Australia as a key reason for the loss of its lucrative BHP Billiton Iron Ore Ports contract, which contributed $2.0 million to EBIT a delivered a return on investment of 7 percent.

"Our labour costs, underpinned by existing EBA frameworks have become less competitive where skills have been scarce and our mining customers have required uninterrupted production," he says.

"We are now working through alternatives including the outsourcing of some labour requirements while renegotiating with our employees to improve flexibility, retain contracts and ensure employment.

"We expect to have far more competitive arrangements in place in north west WA [and] we will continue to work with our employees and assess other models to ensure we remain competitive."

Mitchell says the company has also responded to its difficulties by exiting non-core businesses, restructuring metropolitan businesses, reshaping its fleet and winning contracts in new areas.

A total of 130 people have left the company, or 12 percent of the workforce, with a particular focus on its New South Wales and Queensland operations and a further 60 employees will leave the business in the first quarter of the new financial year.

Boom Logistics has
also identified
66 surplus crane assets for sale which Mitchell says will deliver more than $10 million to the business.

He says the company has taken the opportunity to refresh its fleet, reducing the average age of its equipment from about 18 years to
9 by releasing older and smaller cranes as well as machines customised for specific applications.

"During this same period we reduced debt and invested $62.3 million in the business which included expansion into South Australia through the BHP Billiton Olympic Dam contract and reinvestment in the Travel Tower business which has strong prospects in the utilities sector," Mitchell says.

Contracts were also secured with Rio Tinto, Karara Mining, the Gorgon Liquefied National Gas (LNG) project and Fortescue Metal Group’s Solomon Hub iron ore mine in partnership with the Leightons Group.

"These revenues will support our WA business during FY14," Mitchell says.

"In addition Boom Sherrin was successful in winning a number of key contracts in the Telecommunications sector which supported a consistent result with the previous year.

"The decision last year to manage our access and general hire assets for cash and to restructure the Boom Sherrin business ensured that this business was able to maintain earnings," he adds.

"Our crane logistics business was unable to deliver to expectations with coal customers under extreme duress reducing spending both with us and with other suppliers."

Looking forward Mitchell expects prevailing market conditions to continue with subdued and volatile demand expected in the mining and infrastructure sectors.

"We will, therefore, take a conservative approach to capital expenditure to enable us to further reduce debt and to be in a position to return funds to shareholders," he says.

"We will reduce overall administration and overhead costs by a further $2.5 million in the next twelve months while taking the opportunity to consolidate our Boom Sherrin and crane logistics businesses where they are in the same geographic locations."

With returns from the coal sector difficult Boom Logistics plans to expand in the LNG, wind farm, utilities and resources sectors as well as in new projects and markets.

"By increasing asset utilisation through either wet hire or dry hire we will increase returns,"
Mitchell says.

"In addition we are reducing our cost base and working with our people to improve our operational flexibility to ensure we continue to win new contracts in our core markets.

"In the short term we must respond to the market requirements and continue to deliver on our value proposition," he says.


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