26.01.2012

Modest improvement at Harsco

Harsco, owner of Scaffold and mast climber rental company Harsco Infrastructure – previously SGB/Hünnebeck – has announced a modest improvement for 2011 in terms of revenues and profitability.

Revenues at Harsco Infrastructure edged up seven percent for the 12 months to the end of December to $1.1 billion. At the same time the division made a loss of $125.6 million, compared to $145.3 million in 2010. $87.6 million of this loss was due to restructuring charges, compared to $84.4 million of restructuring charges last year.

In the fourth quarter revenues were virtually flat, climbing less than one percent, to $266.1 million. At the same time the loss increased marginally to $99.7 million – although this was on the back of a larger restructuring charge.

The group as a whole fared better with total revenues up around 8.5 percent to $3.3 billion, while pre-tax profits - including ‘discontinued operations’ – improved from $29.9 million to $31.6 million.
Cash flow for the full year fell from $401 million last year to $299 million this year, partly due to the cash impact of its restructuring efforts.

The company blames a good deal of its Infrastructure woes on its UK business, but says that it believes that its significant cost reductions, combined with an improving UK infrastructure market will return the UK business to overall profitability. It says that overall it expects 2012 to be a growth year, although not in the first quarter. As to the Infrastructure business it expects to break even in 2012 in spite of an anticipated $85 million of further restructuring costs, with profitability coming in 2013.

Chief executive Salvatore D. Fazzolari said: “I am pleased to report that we closed the year on an encouraging note. Fourth quarter results were slightly better than our previous expectations and guidance, although end market conditions continue to be challenging, particularly in Europe.”

“We were especially pleased in the quarter that all business segments posted improved operating results compared with last year’s fourth quarter, with particularly strong performances by both Harsco Rail and Harsco Industrial. Both businesses continue to see solid order books and strong bidding activities as we enter this year.”

“Importantly in the quarter, we took a number of steps to further drive our cost structure significantly lower to accelerate Harsco Infrastructure’s return to profitability and, likewise, accelerate the return of Harsco Metals & Minerals to double-digit operating margins. We are confident that these actions will better position both businesses to help us achieve our previously provided 2015 earnings target.”

Vertikal Comment

After a great start to the results season with United rentals earlier today, the Harsco numbers are disappointing – although not surprising. In the fourth quarter Harsco’s two largest businesses – Metals and Infrastructure – that make up over 80 percent of its revenues, saw flat sales and falling profitability – only the relatively small industrial made solid gains in both the quarter and the full year.

Reading through the rather confusing and complex fourth quarter results report, one cannot help but get the impression that the senior management’s sole strategy is operational cost cutting and restructuring. And yet headquarter costs jumped an incredible 85 percent during the year to $5.79 million.

Harsco has some excellent businesses within its Infrastructure division, but it also has some fast growing and increasingly aggressive competitors, who currently seem able to do quite well in what is quite clearly a ‘soft’ market. Hopefully 2012 will prove to be a turning point for Harsco Infrastructure.