Richard Leupen. Photo: Michele MossopUGL chief executive Richard Leupen has defended his 13-year tenure at the engineering contractor, claiming he had not ”blown the place up” after abandoning its interim dividend and scaling back the group’s 2014 profit forecast.
UGL’s shares fell 12 per cent, close to eight-year lows reached in December, after engineering profits tumbled 40 per cent in the first half.
Mr Leupen, who has been UGL’s chief executive since 2000, argued the group’s business model was holding up ”reasonably well” under stress as a 27 per cent rise in property group DTZ’s earnings and a lower tax rate boosted first-half net profits. ”I didn’t get us into potentially some of the biggest trouble this company could have found itself in,” Mr Leupen said.
But continued weak cash flow – which is running at $9 million, an ongoing decline in engineering profits, and the scrapping of a dividend for the first time during Mr Leupen’s tenure showed UGL still had problems to tackle, investors said.
”It’s another result where their free cash flow looks poor,” said James Power, a research analyst at Legg Mason, which owns UGL stock.
Cash flow has been hurt by costs associated with some 1178 lay-offs and a planned spin-off of DTZ.
Legg Mason holds UGL shares because it hopes to benefit from a de-merger or sale of DTZ, but is also hopeful the group’s engineering business will improve if it wins some of the $4.6 billion of engineering-related bids in its order book.
”The amount of bids they have out there is very large compared with the last couple of years,” Mr Power said, adding he was open to either a sale of DTZ or a de-merger as long as the company reaps between $1.3 billion and $1.5 billion from a potential buyer.
UGL plans to consider unsolicited approaches from several private equity companies in the next two months. But it is also proceeding with plans for a stock market listing of DTZ in Australia with the hope of completing the split this year.
”It’s not clear to us if [the approaches] are just bait or serious bids yet,” Mr Leupen said.
But some analysts expressed scepticism about the sale talk, arguing that UGL may be trying to flush out potential buyers to avoid having to proceed with a dilutive equity raising of up to $400 million to complete the demerger.
UGL, which has gearing of about 35 per cent, scrapped its interim dividend to strengthen the balance sheet ahead of the demerger.
A lawsuit filed by the former head of DTZ, Robert Shibuya, in California alleging UGL had engaged in financial manipulation and discrimination, had ”no substance”, Mr Leupen said.
”It’s a vexatious claim,” he told journalists. ”There is no substance to it.”
”It’s an extortionate claim seeking money.”
UGL plans to take legal action to defend the claim and will also consider counter-claims against Mr Shibuya, the company said.