For 1H2012, the Group’s gross margins were 12.3%, up 3.3 percentage points.
It posted a 62.8% y-o-y increase in 1H2012 net profit attributable to shareholders to reach AU$8.3 million.
It had an order book of AU$282 million as at 9 Feb.
“There is project pipeline visibility,” said acting CEO Stuart Kenny during last Thursday’s results briefing at the Mandarin Oriental Hotel. He expects a growing order book and 3Q revenue which is similar to 2Q's.
"With increasing revenues and better margin work expected to continue into 2H 2012, I am optimistic that this year will position the Group for improved shareholder return.”
For 1H2012, revenue decreased by 8.2% y-o-y to AU$274.4 million due to lower activity levels in the Australian Major Projects segment after the completion of projects in the prior year.
This was partially offset by an increase in the Integrated Services segment as a result of higher activity levels in the Oil and Gas and LNG sector.
CFO Anthony Hardwick said AusGroup was emphasising "the productivity of earnings."
Fabrication and Manufacturing contributed 17% to Group revenue, Major Projects contributed 18% while Integrated Services contributed the lion’s share of 65%.
CFO Anthony Hardwick: "Margins have improved but there's room for more." NextInsight file photo
”The fabrication business performed and will continue to perform in the second half,” said the CEO.
Major fabrication contracts won include shear keys for CB&I, plate work for Kiewiet, transport frames for Mammoet and work at Rio Tinto’s Brockman 4.
Other income decreased by 65.8% y-o-y to AU$1.4 million due mainly to a decline in operating lease income due to the completion of a significant scaffolding contract in Singapore.
Interest received decreased as a result of lower cash balances held.
AusGroup is in a net cash position with cash and cash equivalents of AU$19.8 million as at 31 Dec.
The Group has been improving its working capital management in areas such as cash collection so as to lower interest payments.
On 20 Jan, it announced that ANZ and HSBC have undertaken to provide its bank guarantee and working capital requirements through an initial two-year facility of AU$133 million.
The management expects to benefit from sustained demand for infrastructure developments, particularly in Western Australia, which in turn is driving demand for the Group’s services in the LNG, iron ore and related sectors.
Below are the questions raised at the meeting and replies provided by Mr Kenny and Mr Hardwick.
Q: How will margins trend going forward?
Coming out of the global financial crisis, our margins are back to market competitive levels. We are now aiming to improve bottom line performance through project delivery. With better project management and a much stronger and tighter commercial focus, we can maintain and grow those margins at the end of a project.
We are also focusing on controlling overheads and costs.
Q: Are you seeing delays in current projects?
Yes, there are delays by a large customer, Karara. Jimblebar has also delayed its project because of late deliveries of its modules in China. Pluto is another example.
However, we are also enjoying the benefits of early works on smaller contracts. Delays can be positive if we have already started work.
Q: How will that impact how you allocate your resources?
For the general workforce that does the cutting and welding, we let go of them. Such is the project-based nature of the industry. These workers either go home for a holiday or work for another contractor.
For senior executives in the project management team, however, we carry higher costs of hiring because these have to be hired several months earlier in order to secure a project. We have to get a right balance between retaining them so that they are around when we need them versus higher manpower costs.
We are working hard to secure work in Thailand, Malaysia and Batam and we intend to place some key personnel in Asia. And we've had some success.
Related story: AUSGROUP: FY2011 Net Profit Up 5-Fold At A$12.4 Million
