UGL job cuts save $33m Company’s profitability expected to improve after 2016, hopefully buoying investors

UGL will axe 200 jobs within a month and has downgraded its full-year guidance, capping off a tough 12 months for the engineering group.

The company yesterday announced it would cut 200 staff by the end of June in a move it said would save $33 million next year.

It also lowered its full-year revenue guidance by $100 million to $2.3 billion and flagged a fresh hit to its full-year profit in the form of another $74 million in writedowns.

The job cuts and weaker guidance come at the end of a strategic review of UGL’s operations commissioned by new chief executive Ross Taylor following the $1.2 billion sale of its property business in November.

UGL’s transition to pureplay engineering group has come at a tough time due to the downturn in investment in the resources sector.

The company posted a $122 million first half loss for the six months to December 31 due chiefly to writedowns related to work on a power station at the Ichthys LNG project in the Northern Territory.

But UGL’s announcement was well received by investors, who cheered an improved outlook for the next two financial years. Mr Taylor said while revenue would likely be flat in the 2015/16 year, cost-cutting efforts should boost earnings.

“A significant amount of work has been undertaken to reposition UGL for its future and I am confident from FY16 we will deliver improved profitability,” he said.

UGL expects its earnings before interest and tax margin – a measure of the earnings it makes on projects – to lift one percentage point to 3 per cent.

Mr Taylor said that margin should climb to 4 per cent in 2016/17, while revenue is expected to increase by $300 million.

The company’s shares gained 24¢, or 10.3 per cent, to $2.56.

IG market strategist Evan Lucas said despite the weak guidance for this year, the outlook was strong enough to buoy investors after a difficult few years for the company.

“The headline figures look horrible but it’s a clearing of the decks, the whole strategic review is now out there and it’s bad, but maybe not as bad as the market expected,” he said.

“That’s why I think the market has reacted the way it has.”