 Gerard Hutchinson was appointed MD and CEO in April 2015. Photo by Sim KihLEADERSHIP CHANGES are afoot at AusGroup as a significant new revenue stream takes off.Even its MD is recently appointed. Gerard Hutchinson, 47, has just clocked six months on the job but he is not new to AusGroup, having served prior to this as its CFO for about three years. Stuart Kenny, long the face of AusGroup as its MD, has now taken on a non-executive role but remains as chairman. And Chew Heng Ching, the lead independent director, has assumed an extra role as deputy chairman.  Phillip Coetzer, now CFO after being acting CFO since April 2015. Photo by Sim KihAmong other changes, Phillip Lodewikus Coetzer has been confirmed as CFO. At the recent 1QFY16 results briefing, Mr Hutchinson, the MD, spoke about "rebuilding the company" and "refreshing the company" -- a task made necessary in view of the significant decline in Australia's mining and oil & gas sectors that AusGroup previously derived most of its revenue from through supplying key services. In the transformation of AusGroup, among other things, a message to the staff is "because we have always done things that way -- I don't want to hear that as a reason for why we are still doing it that way. You have to go back to the fundamentals, and ask 'Is there a better way?' " said Mr Hutchison. |
The AusGroup story is now about port & marine services at Port Melville across from Port Darwin in north Australia -- while AusGroup also grows its engineering services, which is largely maintenance services for the oil & gas sector.
(Maintenance services has grown from A$15 million to A$150 million on an annualised basis in the past two years, as Mr Hutchinson noted).
About a year ago, AusGroup acquired for S$41 million in new AusGroup shares (at 44.49 cents apiece) a subsidiary of Singapore listco Ezion Holdings which was setting out to build a port and marine supply base in Port Melville.
In July 2015, AusGroup has completed the construction of a jetty and three storage tanks with an aggregate capacity of 30 million litres.
Regulatory approvals for full commercial operations were delayed until very recently.
And now, a new business segment is born -- port & marine services, in addition to the other existing segment (engineering services). Investors, no doubt, will hope the new business can deliver the earnings to justify the A$130 m total investment.
The offshore oil & gas sector isn't exactly rosy, so that's a reason for reining in excessive optimism. By the way, AusGroup is confident of saving A$10 million a year from cost-cutting measures.
| 1QFY2016 results |
Engineering services AU$’000 | Port & marine services AU$’000 |
Total AU$’000 |
| Revenue | 120,748 | 11,999 | 132,747 |
| Gross profit | 14,049 | 1,124 | 15,173 |
| Margin | 11.6% | 9.3% | 11.4% |
| Net profit (loss) | 1,869 | (1,397) | 472 |
Revenue from Port Melville -- the only gazetted natural deep water international port in Northern Australia -- comes from, among others:
1) Supplying bunker fuel to vessels. AusGroup will earn a spread of c.10 US cts/l from the sale, sharing half of that spread with the fuel supplier, a US oil major.
2) The jetty. AusGroup gets revenue when wood chips are exported through Port Melville. It provides services such as ship handling, and unloading and loading of cargoes.
Check out the following corporate video to get an idea of Port Melville and the business of AusGroup:
A fund manager noted that AusGroup's fixed assets have been, understandably, low-yielding because of the development of Port Melville, and the company's debt has been eating away at its cashflow.
His question: "Are you past the level of maximum capex, and are you about to sweat the assets? Is the company now past an inflexion point?"
Mr Hutchinson replied that no more capex is slated for Port Melville and the business there will henceforth generate free cash flow. The only key capex in AusGroup is the ongoing replacement of the various portions of its portfolio of scaffolding equipment when they reach five years of age.
